2025 Tax Law Changes for Workers: 9 Key Highlights from the One Big Beautiful Bill

The “One Big Beautiful Bill Act” (OBBBA) was signed into law on July 4, 2025—an 800+ page tax overhaul with wide-ranging implications. While the headlines have largely focused on retirees and high-income earners, the 2025 tax law changes for workers are equally significant. From changes to deductions and credits to new treatment of overtime and auto loans, there’s a lot to digest if you’re still earning a paycheck.

If you’re already retired or nearing that transition, I’ve written a separate blog just for you: 2025 Tax Law Changes for Retirees: Top 10 Provisions from the One Big Beautiful Bill Act.

In this blog, I’ll work to break down the changes that matter most to working individuals. Whether you’re salaried, hourly, self-employed, or somewhere in between, these are the provisions that could shape your 2025 return and beyond.

Important Notes:

• As with any major piece of legislation, additional IRS guidance and technical corrections are likely. We should expect updates and clarifications in the months ahead.
• To keep this blog digestible, I’ve limited it to 9 key changes. I’m not skipping the others because they’re unimportant — in fact, many of us are deeply concerned about cuts to safety net programs included in this bill. These changes matter not only through a financial lens, but through the broader lens of what it means to be part of a civil society. If you’re interested in the broader implications of the bill, I encourage you to read further, stay abreast to the impacts as they’re better understood over time and get involved where and how you can.
• I am not a CPA or Enrolled Agent. This post focused on 2025 tax law changes for workers and is intended for general educational purposes and reflects my interpretation of the bill as it stands today.

1. Tax Brackets Permanently Extended

• Before OBBBA: The 2017 Tax Cuts and Jobs Act reduced individual tax rates and widened the brackets—but those cuts were set to expire after 2025.
• After OBBBA: The current (2017-style) tax rates and brackets are now permanent.
  • When it starts: Tax year 2025
  • When it ends: No expiration (permanent)
• Planning Opportunity: If you were bracing for a tax hike in 2026, you can breathe a little easier. Tax planning strategies involving Roth conversions, business income timing, or bracket management may shift knowing the existing brackets remain in place. Want a full rundown of the tax brackets and other important thresholds to keep in mind? Here’s our 2025 “Important Numbers” document.

2. Standard Deduction Increased and Made Permanent

• Before OBBBA: The standard deduction was nearly doubled in 2017 under the Tax Cuts and Jobs Act but was set to expire after 2025. For 2024, the deduction was $13,850 for single filers and $27,700 for married couples filing jointly.
• After OBBBA: The standard deduction is increased again and made permanent, with amounts starting at $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly in 2025. These figures represent increases between $1,150 and $2,300 over the previously adjusted 2025 amounts. Annual inflation adjustments will continue going forward. Additionally, OBBBA includes a new temporary bonus standard deduction of $6,000 for individuals age 65 and older, phased out at higher income levels. This can be added to the usual age-based extra deduction for seniors and the blind.
  • When it starts: Tax year 2025
  • When it ends: No expiration for base amounts; the senior bonus phases out over time
• Planning Opportunity: This update improves the benefit of taking the standard deduction over itemizing, especially for moderate-income workers. For most W-2 employees, the increased standard deduction means less need to track and calculate itemized deductions like mortgage interest or medical expenses. In practice, this simplifies filing and often lowers your tax bill—especially for dual-income households without large deductions. For older adults nearing retirement, understanding the interaction between age-based add-ons and the new senior bonus may help in projecting future tax liability and filing strategy. You can read a bit more about the $6,000 personal exemption for those 65 and older on our tax bill blog focused on retirees.

3. SALT Deduction Cap Raised

• Before OBBBA: The State and Local Tax (SALT) deduction was capped at $10,000, limiting itemized deductions for many working families, especially in high-tax states.
• After OBBBA: The deduction cap is temporarily raised to $40,000 for tax year 2025, and will increase by 1% annually through 2029. This phased expansion offers short-term relief but stops short of being permanent. The full deduction is available to households with MAGI under $500,000, with a phaseout for higher-income taxpayers.
  • When it starts: Tax year 2025
  • When it ends: Reverts to $10,000 in tax year 2030
• Planning Opportunity: If you live in a high-tax state and have historically paid more than $10,000 in combined state income and property taxes, this could be the first time in years you’ll see the full benefit of itemizing. In Oregon, where income tax rates can reach 9.9% and property taxes vary widely by county, many dual-income households with homeownership easily exceed $10,000 in SALT payments each year. For example, an Oregon couple with a combined income of $220,000 and $7,000 in property taxes might pay over $15,000 in state income tax—well above the previous cap. A couple of ideas to make the most of this change:
  • Prepay January property tax installments in December of a high-tax year.
  • Make Oregon estimated tax payments in December instead of January—especially helpful if your income varies.
  • Leverage Oregon’s elective PTE (Pass-Through Entity) tax if you retain ownership in an S-corp or partnership. This allows the business to pay Oregon income tax at the entity level, potentially increasing your federal deduction.
    • If you typically take the standard deduction, it may be worth running a comparison for 2025. With the SALT cap increase, some filers who haven’t itemized in years might find that it saves them money to do so again—particularly in high-income, high-tax states like Oregon, California, and New York.

4. Charitable Giving Rules Adjusted

• Before OBBBA: Itemized charitable deductions were generally available up to 60% of AGI for cash gifts to qualified charities, and all taxpayers in higher brackets could deduct at their marginal rate. Non-itemizers could not deduct charitable contributions.
• After OBBBA: The new law introduces several key changes:
  • Itemizers can only deduct charitable contributions above 0.5% of AGI.
  • Taxpayers in the top tax bracket may only claim a 35% deduction for charitable gifts (rather than their 37% rate).
  • The 60% of AGI limit for cash gifts was made permanent.
  • A new charitable deduction for non-itemizers was introduced: up to $1,000 for single filers and $2,000 for joint filers, starting in 2026. (Gifts to donor-advised funds are excluded.)
    • When it starts: Most changes apply starting in tax year 2025; non-itemizer deduction begins in 2026.
    • When it ends: No expiration specified for itemized or non-itemized rules.
• Planning Opportunity: With fewer people itemizing, the non-itemizer deduction gives modest-income households an extra incentive to give. For high earners, it’s important to understand the cap on deduction rates and AGI thresholds when planning larger charitable gifts. For example, a family earning $160,000 who gives $8,000 to their church would only be able to deduct $7,200 ($8,000 minus 0.5% of AGI). Charitable giving remains a vital tool for expressing values and supporting community organizations—even if tax incentives are changing. For other gifting considerations, visit our blog, Tax-Efficient Giving: Unlocking Smart Philanthropy.

5. Child Tax Credit Increased

• Before OBBBA: $2,000 per child under age 17 (with partial refund-ability).
• After OBBBA: The credit increases to $2,200 per child, with indexing for inflation.
  • When it starts: Tax year 2025
  • When it ends: Not yet specified (indexed for inflation and subject to future legislation)
• Planning Opportunity: More support for working families. If you’re on the edge of the income phaseout ($400,000 for joint filers), you may benefit from strategies that reduce your modified adjusted gross income (MAGI). Additionally, the IRS has not yet released withholding guidance for 2025 under the new credit structure, so workers with children may want to check their paystub or update their W-4 mid-year to avoid surprises come filing time.

6. Qualified Business Income (QBI) Deduction Increased

• Before OBBBA: Pass-through business owners (e.g., sole props, LLCs, S Corps) could deduct 20% of their qualified business income, subject to limitations.
• After OBBBA: The deduction is made permanent and increased to 23%.
  • When it starts: Tax year 2026
  • When it ends: No expiration (permanent)
• Planning Opportunity: The QBI deduction remains one of the most valuable tools for self-employed workers and small business owners, especially those operating as sole proprietors, partnerships, LLCs, or S corporations. With the deduction now permanently extended, planning opportunities might look like:
  • Timing Income Strategically – You’re a freelance graphic designer with income that fluctuates year to year. If your expected income for 2025 is close to the threshold where phaseouts begin (e.g., around $190,000 for joint filers), you might consider deferring some income into 2026 to stay below the threshold and preserve the full 20% deduction. Conversely, in a lower-income year, accelerating income could make sense.
  • Choosing the Right Business Structure – You’re an independent real estate agent earning $120,000 a year as a sole proprietor. You may benefit from forming an S corporation, paying yourself a reasonable salary, and receiving the rest as pass-through income—potentially maximizing the QBI deduction while reducing self-employment taxes. This should be evaluated with a tax professional to ensure compliance and maximize net benefit.
  • Retirement Contributions to Lower Taxable Income – You’re a married couple running a small construction firm has $310,000 in pass-through income, just above the phaseout range. By making deductible retirement plan contributions (e.g., to a SEP IRA or solo 401(k)), you could reduce your MAGI below the phaseout threshold, increasing your eligible QBI deduction.

7. Expanded HSA Eligibility for DPC Users

• Before OBBBA: Individuals enrolled in a high-deductible health plan (HDHP) could contribute to an HSA, but participation in a direct primary care (DPC) membership disqualified them. (Direct Primary Care (DPC) is a membership-based healthcare model where patients pay a flat monthly fee to their doctor for unlimited access to primary care services, bypassing traditional insurance. It typically includes office visits, routine labs, and chronic condition management.)
• After OBBBA: As of 2025, individuals with HDHPs can maintain HSA eligibility even if they are enrolled in a DPC arrangement. HSA funds can now pay for DPC services—up to $150/month for individuals or $300/month for families, indexed for inflation.
  • When it starts: Tax year 2025
  • When it ends: Not specified
• Planning Opportunity: If you prefer a more personalized approach to healthcare, such as a DPC model, this change allows you to stay eligible for HSA contributions while also using those funds to cover DPC fees. This is a strategic option for self-employed workers and others navigating healthcare independently.

8. Overtime & Tip Income Deduction Introduced

• Before OBBBA: All earned income—including overtime and tips—was taxed at ordinary income rates, with no special deduction.
• After OBBBA: Workers can deduct qualifying overtime pay and tip income as above-the-line deductions.
  • Overtime Deduction: Up to $12,500 for single filers and $25,000 for joint filers in qualified overtime pay may be excluded from income. This deduction phases out by $100 for every $1,000 of MAGI above $150,000 ($300,000 joint).
  • Tip Income Deduction: Individuals in tip-receiving occupations can exclude up to $25,000 of reported cash or credit card tips. Tips must be from a job category customarily tipped (to be clarified by Treasury by October 2025) and properly reported on W-2 or 1099.
    • When it starts: Tax year 2025
    • When it ends: Tax year 2028
• Planning Opportunity: If you’re in hospitality, personal services, or other tipped occupations—or you routinely work overtime—this deduction could meaningfully lower your taxable income. Keep accurate records and ensure reported amounts match your W-2. Note that the deduction applies only to properly documented tips and overtime.

9. Auto Loan Interest Deduction Added

• Before OBBBA: Auto loan interest was not deductible for personal-use vehicles.
• After OBBBA: For vehicles purchased in 2025 through 2028, buyers may deduct interest on loans for new, personal-use vehicles that meet specific criteria:
  • The vehicle must be new and assembled in the U.S.
  • Designed for public road use (no golf carts or off-road vehicles)
  • The loan must come from a qualified lender, not a friend or relative
  • Buyers can deduct up to $10,000 in interest per year, with phaseouts starting at $100,000 MAGI for individuals and $200,000 for joint filers. The deduction phases out at $149,000 and $249,000, respectively.
    • When it starts: Tax year 2025
    • When it ends: Tax year 2028
• Planning Opportunity: If you’re already planning to buy a new car, this deduction might make it worth accelerating your purchase. Look for vehicles that qualify and confirm the lender provides proper documentation.

A Few Things To Explore Before the End of 2025

In addition to the 2025 tax law changes for workers mentioned above, there are a few other items to explore before the end of the year (and some cases, end of the summer). If you were already considering certain purchases or home improvements, the OBBBA makes it more urgent to take action before the deadlines. Several tax credits are being rescinded — meaning they’re going away entirely — and doing them in 2025 could be your last chance to capture the benefit.

1. Electric Vehicle Tax Credit
   • Before OBBBA: Buyers could claim a federal tax credit of up to $7,500 for qualified new electric vehicles.
   • After OBBBA: The credit is eliminated for any electric vehicle acquired after September 30, 2025. This is the most time-sensitive elimination to consider.
2. Alternative Fuel Refueling Property Credit
   • Before OBBBA: A credit was available for installing EV chargers and other alternative fuel equipment.
   • After OBBBA: The credit is eliminated for property placed in service after June 30, 2026.
3. Energy Efficiency Home Improvement Credit
   • Before OBBBA: You could receive credits for qualified energy efficiency upgrades (e.g., doors, windows, insulation, heat pumps, etc.).
   • After OBBBA: These credits are eliminated for improvements made after December 31, 2025.
4. Residential Clean Energy Credit
   • Before OBBBA: A 30% tax credit was available for solar, wind, geothermal, battery storage, and other renewable energy systems.
   • After OBBBA: This credit is repealed for expenditures made after December 31, 2025.
5. New Energy Efficient Home Credit
   • Before OBBBA: Homebuilders could claim a credit for constructing energy-efficient homes.
   • After OBBBA: This credit expires for homes acquired after June 30, 2026.

Planning Opportunity: If these were projects you were already considering, completing them in 2025 (or by the applicable deadlines in 2026) will ensure you can still claim the associated credits. We can talk through whether it makes sense to accelerate these plans based on your overall financial picture.

Final Thoughts

The OBBBA includes a little something for everyone, but the 2025 tax law changes for workers have a large impact. These provisions offer a mix of cost relief, new deductions, and future planning opportunities. Some are short-term windows (like overtime deductions) while others reset the playing field permanently (like QBI or tax bracket extensions).

For my ongoing clients, as always, I’m here to help you interpret what applies and make smart decisions from here. Let’s discuss any of these provisions that feel especially relevant in our next check-in.

For those visiting, feel free to reach out if you have questions about how these changes impact your unique financial picture.