What is the One Big Beautiful Bill Act and how does it affect federal tax filings?
Ask Blue J any tax question, then go deeper. Follow up, add client-specific context, and explore the sources behind every answer with Blue J’s generative AI solution for tax research.
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is a comprehensive federal tax and spending law that enacts sweeping changes to the Internal Revenue Code. Its primary purpose is to make permanent many of the individual and business tax cuts and reforms originally enacted by the 2017 Tax Cuts and Jobs Act (TCJA), which were otherwise set to expire at the end of 2025. The OBBBA also introduces new tax provisions, modifies or repeals certain credits and deductions, and implements changes affecting both individuals and businesses. Below is a detailed explanation of what the OBBBA is and how it affects federal tax filings.
1. What is the One Big Beautiful Bill Act (OBBBA)?
Legislative Background and Purpose:- The OBBBA was enacted as part of the 2025 budget reconciliation process, allowing passage by a simple majority in the Senate.- Its main goal is to provide long-term certainty by making the TCJA’s expiring tax cuts permanent, while also enacting new tax policies reflecting the priorities of the current administration.- The law also includes significant changes to health, social, and energy policy, but its most immediate and broad impact is on federal tax law.
2. Major Tax Changes in the OBBBA
2.1. Permanent Extension of TCJA Provisions
- Individual Income Tax Rates and Brackets: The lower tax rates and wider brackets from the TCJA are made permanent, preventing a scheduled tax increase for most filers. The top rate remains at 37% instead of reverting to 39.6%.
- Standard Deduction: The increased standard deduction is made permanent and further increased (e.g., $15,750 for singles, $31,500 for joint filers in 2025, indexed for inflation).
- Personal Exemption: The suspension of the personal exemption is made permanent, with a new temporary deduction for seniors age 65+ ($6,000 per qualifying individual, phased out at higher incomes, available 2025–2028).
- Child Tax Credit: The expanded child tax credit is made permanent, increased to $2,200 per child, and indexed for inflation, with stricter Social Security Number requirements.
- Alternative Minimum Tax (AMT): The higher exemption and phaseout thresholds are made permanent, with a faster phaseout rate (50% instead of 25%).
2.2. Temporary New Deductions (2025–2028)
- No Tax on Tips: Up to $25,000 of qualified tips per year can be deducted, subject to income phaseouts and reporting requirements.
- No Tax on Overtime: Up to $12,500 ($25,000 joint) of qualified overtime pay per year can be deducted, subject to income phaseouts.
- No Tax on Car Loan Interest: Up to $10,000 per year of interest on loans for new, U.S.-assembled vehicles can be deducted, subject to income phaseouts and reporting requirements.
2.3. Business Tax Provisions
- Full Expensing (Bonus Depreciation): 100% bonus depreciation for qualified property is made permanent, allowing businesses to immediately deduct the full cost of most investments.
- R&D Expensing: Immediate expensing of domestic research and experimental expenditures is restored and made permanent; foreign R&D must still be amortized over 15 years.
- Interest Deduction Limitation: The limitation on business interest expense is permanently based on EBITDA (earnings before interest, taxes, depreciation, and amortization), rather than EBIT, increasing allowable deductions.
- Section 199A Deduction: The 20% deduction for qualified business income for pass-through entities is made permanent, with a $400 minimum deduction for active business income.
2.4. Charitable and Itemized Deductions
- Charitable Deduction for Non-Itemizers: A new above-the-line deduction for charitable contributions is created ($1,000 for singles, $2,000 for joint filers).
- Itemized Charitable Deduction Floor: For itemizers, only contributions exceeding 0.5% of AGI are deductible; for corporations, only contributions exceeding 1% of taxable income are deductible.
- SALT Deduction Cap: The state and local tax deduction cap is increased to $40,000 ($20,000 MFS) for 2025–2029, with a phase-down for high incomes, then reverts to $10,000 in 2030.
- Limitation on Itemized Deductions: A new formula reduces itemized deductions for high-income taxpayers.
2.5. Estate and Gift Tax
- The exemption is permanently increased to $15 million per decedent (indexed for inflation), reducing the number of estates subject to the tax.
2.6. International and Corporate Tax
- GILTI and FDII: The deduction for global intangible low-taxed income (GILTI, now “net CFC tested income”) is reduced to 40%, and the deduction for foreign-derived intangible income (FDII, now “foreign-derived deduction eligible income”) is reduced to 33.34%, raising the effective tax rates on these categories.
- Base Erosion and Antiabuse Tax (BEAT): The BEAT rate is set at 10.5% permanently, with certain anti-avoidance measures.
- Other International Changes: The “look-through” rule for related CFCs is made permanent, and the one-month deferral election for specified foreign corporations is repealed.
2.7. Energy and Green Credits
- Many clean energy credits (e.g., for electric vehicles, clean electricity, and refueling property) are terminated or phased out early, with new restrictions on foreign ownership and supply chains for remaining credits.
2.8. Tax-Exempt Organizations
- The excise tax on excess executive compensation for tax-exempt organizations is expanded to cover any employee or former employee who was ever a covered employee after 2016.
- The excise tax on net investment income of private colleges and universities is made progressive, with rates up to 8% for the largest endowments.
- A new tax credit is created for individual donations to scholarship-granting organizations, subject to state opt-in and strict eligibility rules.
3. How Does OBBBA Affect Federal Tax Filings?
For Tax Year 2025
- No Immediate Changes to Forms or Withholding: The IRS has announced that for the 2025 tax year, there will be no changes to information returns (e.g., Forms W-2, 1099, 941) or federal income tax withholding tables to reflect the OBBBA. Employers and payroll providers should continue using current procedures for reporting and withholding.
- Transition Period: The IRS is providing a transition period to avoid disruptions and allow time to implement the new law. Taxpayers will claim new deductions and credits when filing their 2025 returns in 2026, but reporting and withholding will not change for 2025.
- Guidance Forthcoming: The IRS will issue new guidance and update forms for tax year 2026, including changes to how tips and overtime pay are reported. More information will be provided to help taxpayers and reporting entities comply with the new law.
For Taxpayers
- Eligibility and Documentation: Taxpayers must meet new eligibility and reporting requirements for many deductions and credits (e.g., Social Security Numbers for certain credits, VIN for car loan interest deduction, occupation reporting for tips).
- Temporary Deductions: Deductions for tips, overtime, car loan interest, and the senior deduction are available only for 2025–2028 (or as specified), and are subject to income phaseouts and other limitations.
- Permanent Changes: Most TCJA-related provisions, business expensing, and international tax changes are permanent, providing long-term certainty.
For Businesses
- Expensing and Deductions: Businesses can immediately expense qualified investments and domestic R&D, and benefit from a more generous interest deduction limit.
- Reporting Requirements: New reporting requirements for tips, overtime, and car loan interest will be phased in, with IRS guidance to follow.
For Tax-Exempt Organizations
- Excise Tax Compliance: Organizations must review compensation and investment income to comply with new excise tax rules.
- Donor Incentives: New rules for charitable deductions and credits may affect fundraising strategies.
4. Economic and Fiscal Impact
- The OBBBA is projected to increase long-run GDP by about 1.2% and after-tax incomes by 2.9% in 2025 and 5.4% in 2026, with the largest benefits for middle-income taxpayers.
- The law is estimated to increase federal deficits by $3 trillion over the next decade, even after accounting for economic growth and spending cuts.
Summary: The One Big Beautiful Bill Act is a major overhaul of the federal tax code, making permanent many TCJA provisions, introducing new temporary and permanent deductions and credits, and changing rules for businesses, individuals, and tax-exempt organizations. For tax year 2025, there are no immediate changes to tax forms or withholding, but taxpayers and preparers should prepare for new eligibility, documentation, and reporting requirements when filing 2025 returns in 2026. The IRS will provide further guidance and updated forms for future
Was this answer helpful?
What Blue J customers are saying
“We are excited to use Blue J to elevate the initial work product our team is able to produce."
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We had used Checkpoint for a long time but found it wasn’t particularly well-used in our practice."
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"We find this tool to be a game-changer for us and our clients.”
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“Blue J is an exciting technology because it enables the practitioner to remain in the driver’s seat of the analysis."
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"We wanted to have a tool that people were using at all staff levels."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
