Tax Law Changes from the “One Big Beautiful Bill” That Affect Your 2025 Return
Summer 2025 brought sweeping changes to the U.S. tax code under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. These updates introduce powerful deductions and permanently reshape aspects of individual taxation. Here's how to make the most of them—and what to watch out for.
Highlighted Tax Changes That Benefit Individuals
1. New Deductions for Overtime Pay (“No Tax on Overtime”)
Starting in 2025 through 2028, individuals can deduct the extra half-time pay (“time-and-a-half”) portion of FLSA-qualified overtime compensation:
Up to $12,500 for individuals, $25,000 for married couples filing jointly.
Phase-out begins at a modified adjusted gross income (MAGI) of $150,000 (individuals) or $300,000 (joint).
2. Deduction for Auto Loan Interest on U.S.-Assembled Vehicles
For 2025–2028, taxpayers can deduct up to $10,000 of interest paid on a qualifying auto loan for U.S.-assembled personal-use vehicles:
Phase-out starts at $100,000 (individuals) and $200,000 (joint filers).
3. Enhanced Deduction for Seniors (65+)
Seniors aged 65 or older qualify for an additional $6,000 deduction—on top of the standard deduction—for tax years 2025–2028. The deduction phases out at MAGI over $75,000 (individuals) or $150,000 (joint filers).
4. Expanded SALT Cap and Child Tax Credit Adjustments
The SALT deduction limit rose dramatically:
Now $40,000 for individuals, $20,000 for married filing separately, with a phase-out starting at $500,000 MAGI.
The child tax credit increased to a $2,200 maximum per child (indexed for inflation), though the refundable portion did not increase—meaning actual credit value may vary.
5. Permanent Extension of TCJA Provisions & Standard Deductions
The OBBBA makes permanent the 2017 Tax Cuts and Jobs Act (TCJA) format—eliminating personal exemptions, while enhancing standard deductions:
$15,750 (single), $23,625 (head of household), $31,500 (married filing jointly).
IRS Workforce Turmoil & Direct File Discontinuation: What it Means for You
Processing Delays and Reduced Support
A notable drop in IRS staffing—roughly a 26% reduction—coupled with layoffs affecting probationary workers, has raised concerns about slower processing, delayed refunds, and longer wait times for taxpayer support.
IRS Free Filing (Direct File) Is Officially Gone
The previously expanding IRS Direct File program, which allowed free filing of tax returns, was officially discontinued in 2025. The IRS plans to replace it via a task force and possible public–private alternatives. In the meantime, expect fewer free government-backed filing options.
Final Takeaway
The OBBBA delivers valuable, time-limited deductions and makes much of the TCJA format permanent—offering planning opportunities but also increasing complexity. Meanwhile, reduced IRS staffing and the end of Direct File underscore the importance of preparing ahead and seeking reliable tax-filing resources.
