The One Big Beautiful Bill Act: What Changes in 2026 and Why It Matters

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On July 4, 2025, Congress enacted the One Big Beautiful Bill Act (Public Law 119-21) (the “OBBBA”), a sweeping revision to the Internal Revenue Code. While early commentary focused on the permanence of the Tax Cuts and Jobs Act (“TCJA”) rate structure, the statute goes much further. It reshapes individual deductions, alters business incentives, accelerates the sunset of certain credits, and expands compliance and enforcement mechanisms.  Prior to enactment, many of these TCJA provisions were scheduled to expire after December 31, 2025, creating significant uncertainty around rates, deductions, and planning strategies.

The real significance of the OBBBA is not that marginal rates remain unchanged. It is that Congress deliberately reaffirmed and extended a post-TCJA architecture in which adjusted gross income, rather than statutory rates or traditional deductions, is the primary mechanism for allocating tax burdens and tax benefits. In doing so, Congress shifted where planning matters, where risk accumulates, and how compliance is enforced.  Before the TCJA, tax relief was delivered more heavily through personal exemptions and itemized deductions, rather than income-based phase-outs tied to AGI.

This article focuses on two groups most directly affected by the legislation: individual taxpayers and businesses/business owners. Rather than summarizing political talking points, it explains what the law actually changes, how it interacts with existing tax structures, and where the practical consequences lie. In many cases, the changes do not introduce entirely new concepts, but instead make temporary TCJA-era rules permanent while layering in new, more targeted deductions and enforcement provisions.

Part I — Individuals and Families

1.     Permanent Extension of TCJA Individual Rates.

The OBBBA permanently extends the individual income tax rate structure enacted under the TCJA, preventing the scheduled reversion to higher pre-2018 rates after December 31, 2025. The top marginal rate remains at 37 percent. Most brackets receive an additional inflation adjustment year, slightly widening bracket ranges for 2026. Under prior law, these lower rates were temporary and would have reverted automatically absent congressional action.

Why it matters:

The permanence of the rate structure eliminates years of planning built around an assumed post-2025 rate increase. Compensation timing, Roth conversion strategies, and multi-year income planning should now be recalibrated based on stable marginal rates rather than sunset risk.

2.     Standard Deduction Made Permanent (and Temporarily Enhanced).

The expanded standard deduction is made permanent. In addition, for tax years 2025 through 2028, the statute provides a temporary enhancement on top of inflation adjustments. As a result, even fewer taxpayers will itemize deductions going forward.  Before the TCJA, a much larger share of taxpayers itemized deductions, relying on mortgage interest, SALT, and miscellaneous itemized deductions.

Why it matters:

Itemization is increasingly the exception. Planning strategies that once relied on mortgage interest, SALT deductions, or miscellaneous itemized deductions now require reconsideration. Bunching strategies and AGI-based planning become more relevant than traditional deduction stacking.

3.     Personal Exemptions Permanently Eliminated.

The personal exemption deduction—suspended under the TCJA and previously scheduled to return—is permanently repealed.

Prior to 2018, personal exemptions provided a per-person reduction in taxable income that scaled with family size.

Why it matters:

Family-size-based tax relief is now fully consolidated into credits and standard deductions. For larger households, planning revolves around credit eligibility rather than exemptions.

4.     Child Tax Credit Expanded and Extended.

The $2,000 child tax credit is made permanent and temporarily increased to $2,500 per qualifying child for tax years 2025 through 2028, with inflation indexing thereafter. Social Security number requirements and modified phase-out rules remain in place.

Absent the OBBBA, the credit would have reverted to lower amounts under pre-TCJA law.

Why it matters:

The credit continues to operate as a core mechanism for family-level tax relief, but eligibility and phase-out thresholds remain critical. For taxpayers near the income limits, small changes in AGI can produce disproportionate effects.

5.     SALT Deduction Cap Modified, Not Repealed.

The OBBBA increases the state and local tax (SALT) deduction cap to $30,000 ($15,000 for married filing separately), subject to a phase-down for higher-income taxpayers. Importantly, the cap is extended permanently rather than allowed to expire.Under the TCJA, the SALT deduction was capped at $10,000 and scheduled to sunset after 2025.

The statute also includes explicit anti-avoidance authority aimed at entity-level workarounds and mismatched allocation strategies. These provisions respond to state-level and entity-level SALT workaround regimes that developed after the TCJA.

Why it matters:

This is relief, not a return to pre-TCJA SALT deductibility. High-income taxpayers must model the interaction between the expanded cap, phase-downs, and the standard deduction. Pass-through owners relying on SALT workaround regimes should reassess exposure in light of the statute’s enforcement posture.

6.     New Above-the-Line Deductions: Tips and Overtime (Temporary).

For tax years 2025 through 2028, the OBBBA creates new above-the-line deductions for:

• qualified tip income earned in traditionally tipped occupations, and

• the premium portion of overtime compensation required under federal labor law.

Both deductions are subject to income caps, annual limits, and detailed reporting rules.Prior law taxed tips and overtime compensation in the same manner as regular wages, without special deductions.

Why it matters:

Because these deductions reduce adjusted gross income, they can affect eligibility for other credits and deductions. At the same time, they introduce significant compliance and classification risk. For employees, documentation matters. For employers, payroll and reporting systems will need adjustment.

7.     Enhanced Deduction for Seniors (Ages 65+).

The statute introduces a temporary senior deduction (available regardless of itemization) for tax years 2025 through 2028, subject to income phase-outs. This deduction is in addition to existing age-based standard deduction increases.

Previously, tax relief for seniors was limited largely to the additional standard deduction amounts.

Why it matters:

For retirees managing income through withdrawals, Roth conversions, or capital gains, the phase-out ranges create new “planning cliffs” that did not previously exist.

8.     Limited Deduction for Personal Vehicle Loan Interest.

The OBBBA allows an above-the-line deduction of up to $10,000 for interest paid on certain qualified passenger vehicle loans, subject to strict eligibility requirements, domestic assembly rules, and income limits.

Under prior law, interest on personal vehicle loans was generally nondeductible.

Why it matters:

This provision is highly technical and fact-dependent. Taxpayers should not assume eligibility without confirming that all statutory requirements are satisfied.

Topic	Prior Law / What Would Have Happened	OBBBA Change	Why This Is Meaningful
Individual income tax rates	TCJA rates (10%–37%) scheduled to expire after Dec. 31, 2025 and revert to higher pre-2018 rates[1]	TCJA rate structure made permanent; top rate remains 37%	Eliminates the anticipated 2026 rate increase and removes “sunset-driven” income acceleration strategies
Bracket inflation adjustments	Standard inflation indexing only	Additional inflation adjustment year for most brackets	Slightly widens brackets, reducing bracket creep and marginal rate compression
Standard deduction	Expanded TCJA standard deduction scheduled to expire after 2025	Made permanent, with temporary enhancements for 2025–2028	Locks in a non-itemization norm; reinforces AGI-based planning over deduction stacking
Itemization prevalence	Itemization already declining under TCJA	Further decline due to permanent high standard deduction	Mortgage interest, SALT, and medical deductions matter to fewer taxpayers
Personal exemptions	Suspended under TCJA but scheduled to return after 2025	Permanently repealed	Confirms family-based relief will flow through credits, not per-person exemptions
Child tax credit	$2,000 credit scheduled to revert to lower pre-TCJA levels	Made permanent and temporarily increased to $2,500 (2025–2028)	Maintains credit-centered family relief while preserving income phaseouts
SALT deduction cap	$10,000 cap under TCJA, scheduled to expire after 2025	Increased to $30,000 ($15,000 MFS) with phase-down; cap made permanent	Partial relief without restoring pre-TCJA unlimited deductibility; planning still constrained
SALT workarounds	State and entity-level workarounds tolerated but unsettled	Explicit anti-avoidance authority granted to Treasury	Signals greater scrutiny of pass-through SALT strategies
Taxation of tips	Fully taxable as ordinary income	Temporary above-the-line deduction for qualified tips (2025–2028)	Lowers AGI rather than taxable income; impacts credits and surtaxes
Taxation of overtime	Fully taxable as wages	Temporary above-the-line deduction for overtime premium pay	Introduces AGI sensitivity and payroll reporting dependency
Senior tax relief (65+)	Limited to additional standard deduction	New temporary senior deduction with phaseouts	Creates new income cliffs for retirees managing withdrawals
Personal auto loan interest	Generally nondeductible	Limited above-the-line deduction up to $10,000	First reintroduction of personal interest deductibility since 1986, but highly constrained

Part II — Businesses and Business Owners

1.     Qualified Business Income Deduction Enhanced.

The §199A qualified business income deduction is made permanent. The proposed version of the Bill increased from 20 percent to 23 percent beginning in 2026. However, the final version that was passed maintained it at 20 percent. The statute also modifies the wage and specified service trade or business phase-in mechanics to reduce extreme marginal rate spikes.Before enactment, the QBI deduction was temporary and scheduled to expire after 2025.

Why it matters:

For pass-through owners, this change directly affects effective tax rates and entity-level planning. Compensation structures, reasonable salary determinations, and income allocation should be revisited under the revised mechanics.

2.     Employer-Focused Credits Expanded.

The OBBBA significantly increases the employer-provided childcare credit, raising the maximum credit from $150,000 to $500,000 ($600,000 for eligible small businesses). It also expands the employer FICA tip credit to include certain beauty service establishments.Previously, these credits were narrower in scope and less impactful for mid-sized employers.

Why it matters:

These credits are among the few provisions that can influence real operational decisions. Businesses already providing childcare or operating in tip-based industries should reassess eligibility and compliance requirements.

3.     Business Expensing and Investment Incentives.

The statute restores 100 percent bonus depreciation for qualifying property placed in service between January 20, 2025, and January 1, 2030. It also restores immediate expensing of domestic research expenditures and temporarily relaxes business interest deduction limitations by returning to an EBITDA-based calculation.

Under recent law, bonus depreciation had begun to phase down and research costs were required to be amortized.

Why it matters:

These provisions materially affect capital-intensive businesses and acquisition modeling. Timing of purchases and project placement in service becomes especially important.

4.     Employee Retention Credit Enforcement.

While the OBBBA does not revive the employee retention credit, it expands enforcement tools, audit authority, and penalties related to prior ERC claims. This follows widespread IRS   concern over improper or aggressive ERC claims during prior years.

Why it matters:

Businesses that claimed ERC—or acquired businesses that did—should treat documentation and exposure as a priority. ERC history is now a diligence issue in transactions.

5.     Targeted Industry-Specific Changes.

The statute limits amortization of certain sports franchise intangibles and tightens executive compensation deduction rules within controlled groups.

These provisions build on prior limitations under sections 162(m) and 197.

Why it matters:

These changes are narrow but significant for affected industries, altering valuation and after-tax return assumptions.

Topic	Prior Law / What Would Have Happened	OBBBA Change	Why This Is Meaningful
Qualified Business Income (QBI) deduction	20% deduction under §199A scheduled to expire after 2025	Made permanent and increased to 23% beginning in 2026	Direct reduction in effective tax rates for pass-through owners
QBI wage/SSTB limitations	Sharp phase-ins created extreme marginal rate spikes	Phase-in mechanics softened	Reduces punitive marginal effects for businesses near thresholds
Bonus depreciation	Phasing down from 100% to 0% under TCJA schedule	Restored to 100% for property placed in service 2025–2030	Revives front-loaded investment incentives
Research expenditures	Mandatory capitalization and amortization	Immediate expensing restored	Improves cash flow for R&D-heavy businesses
Business interest limitation	EBIT-based limitation under §163(j)	Temporary return to EBITDA-based calculation	Expands interest deductibility for leveraged businesses
Employer childcare credit	$150,000 cap ($300,000 small business)	Increased to $500,000 ($600,000 small business)	Makes childcare benefits economically meaningful rather than symbolic
Employer FICA tip credit	Limited primarily to food and beverage establishments	Expanded to certain beauty service businesses	Extends payroll tax relief to additional service industries
Payroll and information reporting	No special tracking for tip/overtime deductions	New reporting expectations tied to employee deductions	Shifts compliance burden to employers
Employee Retention Credit (ERC)	Credit expired; enforcement ongoing but fragmented	Expanded audit authority and penalties	ERC exposure becomes a diligence and risk-management issue
Controlled group exec compensation	§162(m) limits already expanded under TCJA	Additional tightening and allocation rules	Reduces flexibility in structuring executive pay
Sports franchise intangibles	Full §197 amortization available	Amortization limited to 50% of basis	Alters valuation and after-tax returns in acquisitions
Overall enforcement posture	Incentive-heavy, enforcement uneven	Incentives paired with explicit compliance tools	Congress signals less tolerance for aggressive positioning

Conclusion

The One Big Beautiful Bill Act is not simply an extension of the TCJA. It is a structural recalibration of the federal tax system: permanent in some areas, temporary in others, and more compliance-driven across the board.

It reflects a continued shift away from broad-based deductions and toward income-based phase-outs and targeted relief.  For individuals, the law shifts planning away from sunset anxiety and toward income-based phase-outs and documentation. For businesses, it combines renewed investment incentives with increased scrutiny and reporting obligations.  Tax planning under the OBBBA therefore requires greater attention to adjusted gross income, timing, and substantiation.

The central takeaway is not urgency, but reassessment. Assumptions based on pre-OBBBA law—particularly regarding deductions, credits, and timing—should be revisited in light of this new statutory framework. Taxpayers who rely on prior planning models may find those assumptions no longer hold.

For questions about how these tax changes may impact your business or real estate holdings, or if there are additional provisions of the OBBBA you would like addressed in our posts, VAdam Law is available to assist and would like to hear from you. Consultations may be scheduled on our online scheduling portal or by calling at (954) 451-0792.

[1] Before the enactment of the OBBBA, the individual income tax rates in effect prior to 2018 were scheduled to return beginning in 2026. Under pre-2018 law, the federal individual income tax brackets were 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent. These brackets applied at lower income thresholds than under current law, and the top marginal rate of 39.6 percent was coupled with the phase-out of personal exemptions and itemized deductions, resulting in higher effective marginal tax rates for many upper-income taxpayers.