One Big Beautiful Bill Act (OB3)
Overview of Changes
INDIVIDUAL (1040) TAX RETURNS
Standard Deduction: For tax year 2026, the standard deduction increases to $32,200 for married couples filing jointly. For single taxpayers and married individuals filing separately, the standard deduction rises to $16,100 for tax year 2026, and for heads of households, the standard deduction will be $24,150.
(Additionally, for tax year 2025, the OBBB raises the standard deduction amount to $31,500 for married couples filing jointly. For single taxpayers and married individuals filing separately, the standard deduction for 2025 is $15,750, and for heads of households, the standard deduction is $23,625.)
Personal Exemptions: The OB3 permanently eliminates personal exemptions.
Senior Exemptions: For those age 65 and older, there is a $6,000 deduction which phases out for those taxpayers with modified adjusted gross income (MAGI) in excess of $75,000 for individuals or $150,000 for joint filers. This has been referred to as the elimination of tax on Social Security benefits, but it is not an elimination of tax on all SSA benefits, just a deduction of up to $6,000 per person within the income limits. If married, taxpayers must file jointly to claim this deduction, it is not available for those using the married filing separately status.
Charitable Contribution Deductions: A new deduction for charitable contributions made after December 31, 2025 for non-itemizers up to $1,000 ($2,000 for joint filers). There are income and other limits on this deduction.
Mortgage Interest Deduction: The 2017 Tax Cuts and Jobs Act limitation to the interest of the first $750,000 of home acquisition indebtedness is permanently extended. In addition, interest deductions on home equity indebtedness is permanently disallowed under the OB3.
Marginal Rates: For tax year 2026, the top tax rate remains 37% for individual single taxpayers with incomes greater than $640,600 ($768,700 for married couples filing jointly). The other rates are:
- 35% for incomes over $256,225 ($512,450 for married couples filing jointly);
- 32% for incomes over $201,775 ($403,550 for married couples filing jointly);
- 24% for incomes over $105,700 ($211,400 for married couples filing jointly);
- 22% for incomes over $50,400 ($100,800 for married couples filing jointly);
- 12% for incomes over $12,400 ($24,800 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $12,400 or less ($24,800 for married couples filing jointly).
Alternative Minimum Tax Exemption Amounts: For tax year 2026, the exemption amount for unmarried individuals is $90,100 and begins to phase out at $500,000 ($140,200 for married couples filing jointly for whom the exemption begins to phase out at $1,000,000).
Estate Tax Credits: Estates of decedents who die during 2026 have a basic exclusion amount of $15,000,000, up from a total of $13,990,000 for estates of decedents who died in 2025.
Adoption Credits: The maximum credit allowed for adoptions for tax year 2026 is the amount of qualified adoption expenses up to $17,670, up from $17,280 for 2025. For tax year 2026, the amount of credit that may be refundable is $5,120.
Employer-Provided Childcare Tax Credit: For tax year 2026, the OBBB significantly enhances an important credit for employers; it increases the maximum amount of employer-provided childcare tax credit from $150,000 to $500,000 ($600,000 if the employer is an eligible small business).
Tip Income: Deduction, even if taxpayers do not itemize, for income from tips. A Social Security Number is required to claim the deduction. It is capped at $25,000 and will phase out when MAGI exceeds $150,000 for single filers or $300,000 for taxpayers filing jointly. There are exclusions for those working in a Specified Service Trade or Business. Tip income remains subject to SSA, Medicare and state income tax.
Overtime Pay: Wage earners who receive overtime compensation will be able to claim a deduction, even if they do not itemize, for up to $12,500 of overtime pay. This applies only to the amount paid in addition to regular pay – if overtime is paid at time-and-a-half rate, the “time” portion is still subject to tax, only the additional “half-time” pay is allowable as a deduction. All income is subject to SSA, Medicare and state income tax.
Child Tax Credit: The OB3 permanently increases the base amount of the child tax credit to $2,200 from the previous $2,000 cap. This will be increased for inflation annually. The refundable portion of the child tax credit (the “additional child tax credit”) was also capped at $1,400 under the OB3.
State and Local Taxes (SALT): The SALT deduction cap is raised to $40,000 for taxable years 2025 through 2029 (with a 1% increase to such cap each year through 2029), subject to phaseout (down to $10,000) for single taxpayers earning over $250,000 and married taxpayers earning over $500,000.
Estate and Gift Taxes: The final OB3 increases the estate, gift, and generation-skipping transfer tax exemption to $15 million per person beginning in 2026 (indexed for inflation annually thereafter).
Car Loan Interest: Under pre-OB3 law, individual taxpayers could not deduct “personal interest” such as interest on loans used to purchase cars for personal use. The OB3 provides individuals (including nonitemizers) with a temporary tax deduction for interest paid on loans used to purchase a new personal-use passenger vehicle. For tax years 2025-2028, individuals can deduct up to $10,000 of car loan interest per year, subject to a phase-out starting at $100,000 MAGI for single filers and $200,000 for joint filers. To qualify for the deduction: – The debt must be incurred after December 31, 2024, for the purchase of a new personal use vehicle, secured by a first lien on the vehicle, and the vehicle's original use must begin with the taxpayer. – The vehicle must be a car, minivan, van, SUV, pickup truck, or motorcycle, with a gross vehicle weight rating under 14,000 pounds, and final assembly of the vehicle must occur in the United States, and – The taxpayer must report the vehicle identification number (VIN) on their tax return. – In addition, the provision requires lenders to file information returns reporting interest received on qualified personal auto loans with the IRS.
Electric Vehicle Credits: The OB3 eliminates income tax credits for new and previously owned clean vehicles for expenditures made after September 30, 2025.
Home Energy Efficiency Credits: The OB3 eliminates income tax credits for energy efficient home improvements and residential clean energy improvements made after 12/31/2025. This includes solar power, HVAC, insulation and other energy related home improvements.
Additional Expenses Treated as Qualified 529 Higher Education Expenses: The OB3 provides that tax exempt distributions from 529 savings plans apply to more expenses attributable to enrollment or attendance at an elementary or secondary public, private, or religious school. The expanded list of eligible education expenses includes tuition; curriculum and curricular materials; books or other instructional materials; online educational materials; tuition for tutoring or educational classes outside of the home; fees for nationally standardized tests, advanced placement exams, and college admission exams; fees for dual enrollment at higher education institutions; and educational therapies for students with disabilities provided by a licensed or accredited professional. The Act increases the annual limit for 529 account distributions from $10,000 to $20,000. This limitation applies only to K-12 expenses. The effective date for the expanded expenses applies to distributions made after the date of enactment, and the $20,000 limitation applies to tax years beginning after December 31, 2025.
Trump Accounts: Accounts will be established for U.S. citizens born between 2025 and 2028. They are to be opened with $1,000 of “seed money” from the U.S. Treasury. After the account is established, annual contributions of up to $5,000 may be made by the taxpayers claiming the child as a dependent until the child is 18. Employers may contribute up to $2,500/year. The assets of these accounts will be the property of the child, held in a custodial trust, and cannot be withdrawn until the child attains the age of 18. At that point, the account becomes a traditional IRA. Specifics of how this will be implemented have not been released as of November 2025. Provided information states that these accounts will begin in 2026 in some automated format.
Moving Expenses: Permanently repeals the income exclusion and deduction, except for certain members of the Armed Forces.
Form 1099-K – Payment card and third party network transactions: OB3 retroactively reinstated the reporting threshold in effect prior to the passage of the American Rescue Plan Act of 2021 (ARPA so that a third party settlement organization (TPSO) is not required to file a Form 1099-K unless the gross amount of reportable payment transactions to a payee exceeds $20,000 and the number of transactions exceeds 200. Taxpayers who receive payments in excess of these thresholds should expect to receive a Form 1099-K in January of the year following the tax year. A copy of this form will also be sent to the IRS.
BUSINESS (1065, 1120, 1120-S) TAX RETURNS
Bonus Depreciation: The 100% bonus depreciation election for qualified property acquired and placed in service after January 19, 2025 is now permanent.
Qualified Pass-Thru Business Income Deduction: The OB3 permanently extends the 20% deduction for certain qualified business income from pass-through entities. The OB3 also increases the income-based phaseout of the deduction and includes other taxpayer-favorable changes.
Business Interest Expense Deduction: The OB3 reestablishes the cap on the deductibility of business interest expense at 30% of EBITDA (reverting back to the original cap imposed by the TCJA) for taxable years beginning after December 31, 2024 (i.e., retroactive to the beginning of 2025), while including new provisions that would treat certain capitalized interest expense as subject to the Section 163(j) limitation and other limitations that reduce the cap in certain circumstances.
Research and Development Expenditures: Immediate expensing of domestic R&D expenditures starting in 2025, while continuing 15-year amortization for foreign R&D is now allowed. There are additional provisions related to this change.
Corporate Charitable Contributions: A 1% floor is imposed on corporate charitable deductions, allowing deductions only for contributions exceeding 1% of taxable income.
Employer-Provided Meals: Amends the TCJA rule, effective for 2026, that will disallow deductions for various expenses related to on-premises, employer-provided meals, so that certain businesses will be exempt from the disallowance.
*This is an overview of changes resulting from the OB3 and is not intended to provide legal or tax guidance on these topics. You should discuss these topics with your tax advisor.
2026 Tax Filing Season for 2025 Tax Returns
Tax Filing Deadlines
2025 Partnership and S-Corporation Returns
The initial filing and extension deadline is March 16, 2026. If an extension is filed, the tax return is due September 15, 2026.
2025 Individual, C-Corporations and Fiduciary (Trust & Estate) Returns
The initial filing, extension and payment deadline is April 15, 2026. If an extension is filed, the tax return is due October 15, 2026. Fiduciary returns with extension are due September 30, 2026.
2025 Federal Tax Refund Status
The IRS is processing many returns and refunds in a timely manner, usually within 21 days of their receipt of electronically filed returns. Those returns which include validation of income to claim the Earned Income Tax Credit and reconciliation of the Advance Payment of the Child Tax Credit or Additional Child Tax Credit will likely be delayed. There has been no guidance from the IRS on how long these delays may last, but it probably will be more than 8 weeks. You can check the status of your Federal refund by visiting this website https://www.irs.gov/refundsYou will need your Social Security number, tax return filing status and the exact amount of your refund. If the status is “Processing” and there is not a date listed, contact our office so you can authorize a Tax Power of Attorney, and we will check with the IRS to determine what the issue might be. Call our office for more information.
