OBBB - 2025's new tax bill
There are many changes in this newest tax bill, which was signed July 4th, 2025.
IRS has 90 days to interpret and clarify the bill. Below is a breakdown based on what we know now, but it is subject to change. We haven’t covered the entire bill, or all provisions in it, but narrowed it down to the main items impacting you, our clients. Have a question about something you don’t see here? Please reach out!
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As a reminder, states do not need to follow federal tax laws. California often doesn't conform to Federal changes.
Highlights of The OBBB
Beginning September 30th, 2025, IRS will not mail paper checks, nor will it accept them. If you mail in your payments, you will need to pay online. We provide instructions for online payments with your tax return.
IRS will not be issuing paper checks for refunds.
The administration did not deliver on that specifically. Instead of a tax break on Social Security, individuals 65 and older will get an additional deduction of $6,000. You don’t need receive Social Security to qualify for it. It’s a per person deduction, so a married filing jointly couple over 65 could receive up to $12,000 additional deduction.
The deduction phases out starting at $75,000 for single filers, and $150,000 for joint filers.
You must still report Social Security income on your return. There is no connection between receiving Social Security and this additional deduction.
The IRS needs to make some clarifications on this, but it appears that individuals can claim up to a $25,000 deduction on tips received. The tips only count in occupations that customarily receive tips, such as restaurants and salons.
Your tips must be reported to your employer and FICA taxes will still be withheld on them. This is a deduction on your tax return, not your paycheck.
You will need a Social Security number to receive this and you don’t need to itemize. The deduction phases out at $125,000 single and $300,00 for joint filers. You can’t file separately and receive this.
Self employed people can claim the deduction, but there are limitations, and we have to wait on IRS to issue regulations.
The IRS will issue regulations on this, but it appears that taxpayers may deduct their overtime, up to $12,500 single and $25,000 married filing jointly.
This is a deduction on your tax return, not on your paycheck.
The deduction is on the amount over your normal payrate.
Example: Kim makes $20/hr. Her overtime rate is $30/hr. Her deduction would only be on the $10/hr difference.
We believe a new version of the W2 will need to be created to account for this deduction.
This deduction is only available to people with Social Security numbers. It phases out at $150,000 single and $300,000 married filing jointly. You do not need to itemize to claim this.
For 2025 through 2028, interest paid on a passenger vehicle may be deductible. There are many exclusions on this:
The vehicle must be assembled in the USA and must be under 14,000 pounds.
Loans cannot be from related parties
Loans cannot be for fleet vehicles, commercial use vehicles, leased vehicles, or salvage title vehicles.
Loans must be for a new car, not a used car (yes, it’s new to you, but not for this deduction).
The deduction for qualifying loan interest is potentially up to $10,000 and is available to people who don’t itemize.
All newer energy credits under the prior administration have been set to expire, either by September 30th, 2025 to June 30, 2026.
Repeal Effective Date | Credit/deduction name |
After Sept 30, 2025 | Clean vehicle credit |
​ | Previously owned clean vehicle credit |
​ | Qualified commercial vehicle credit |
After Dec 31, 2025 | Energy-efficient home improvement credit |
​ | Residential clean energy credit |
After June 30, 2026 | Alternative fuel vehicle refueling property credit |
​ | Energy-efficient commercial buildings deduction |
​ | New energy-efficient home credit |
Credit source: NATP |
The SALT deduction, available to itemizers, has been capped at $10,000 since Trump’s first Tax Cuts and Jobs Act. The cap is now $40,000.
The cap has been especially harmful to Californians, and people in other states who pay significant amounts in property and/or income tax.
This new cap does not impact PTET credits or elections, which remain available to certain business owners.
However, there is a caveat: Filers making $500,000 ($250,000 single/married filing separately) are ineligible for this expanded deduction.
Child tax credit goes up to $2,200 from $2,000. This is for children under 17, who have a valid SSN. For joint returns, one of the taxpayers must have a valid SSN.
This amount is indexed to inflation and may increase annually.
The child tax credit works in two phases:
1. First to pay down your tax
2. Second, any left over can be refunded up to $1,400. (This has not changed)
Currently, the maximum amount of the credit paid for daycare is 35% of amount paid.
Beginning in 2026, it will increase to 50%.
There are additional rules for phasing out, based on income, but it cannot go below 20%, for those making over $75,000 single, $150,000 married filing jointly.
The bill made several changes to charitable contributions effective 12/31/25:
There is now a 0.5% floor of charitable contributions
That means if you donate $500, you don’t get a deduction for the first 0.5% or $25.
It added an ability for individuals who don’t itemize to take a charitable deduction, up to $1,000 single or $2,000 married filing jointly.
This would be taken on the 1040 and would reduce your income.
Corporations also have a limitation on charitable contributions, at 10%. (ex: if your corporation donates $500, you can’t deduct the first $50).
529 accounts, or education savings accounts, were allowed to be used for K-12 tuition starting with the Tax Cuts and Jobs act, up to $10,000. That was expanded with this bill to $20,000.
There are also new eligible expenses, starting in 2026:
· Tuition at public, private, or religious schools
· Books and online materials
· Tutoring or external education classes (cannot be related to student)
· Standardized testing fees
· Dual enrollment fees for college course taken in high school
· Educational therapies for disabled students (ex: speech, physical therapy)
California does not conform. Funds taken out will not be taxed federally, but, as of writing, will be taxed by the state.
The government will deposit $1,000 for kids with SSNs born between December 31, 2024 and the end of 2029. Taxpayers, and their relatives, can contribute up to $5,000 to it.
There are strict contribution rules. Beneficiaries would be able to access the accounts when they turn 18. If they use the funds for post-secondary education or to buy a house, it would be treated as a capital gain. If they use it for anything else, it will be taxed as ordinary income.
Because this is a financial vehicle, we recommend reaching out to a financial planner to determine if this type of account is best for your family.
Effective 01/01/2026, there is no limit to the amount you must pay back for incorrect premium subsidies.
If you receive too much you will need to repay the full amount starting with your 2026 return (filed in 2027). We recommend meeting carefully with your health exchange and, once your taxes are complete, reaching back out to them to see if adjustments need to be made.