One Big Beautiful Bill (OBBB)

Public Law 119-21, aka The One Big Beautiful Bill

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, enacted sweeping changes to the U.S. tax code, affecting individuals, businesses, and international tax rules. Below is a comprehensive summary of the major changes and their impact on taxpayers, organized by key areas:

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1. Individual Income Tax Provisions

Permanent Extension of TCJA Provisions

• The OBBBA makes permanent the individual tax rate reductions and expanded standard deduction from the 2017 Tax Cuts and Jobs Act (TCJA), which were previously set to expire after 2025. The top marginal rate remains at 37%, and the lower rates and wider brackets continue, indexed for inflation [3].

Standard Deduction

• The standard deduction is increased and made permanent, with 2025 amounts set at $31,500 for joint filers, $15,750 for singles, and $23,625 for heads of household. For 2026, these rise to $32,200, $16,100, and $24,150, respectively, with future inflation adjustments [3].

Personal Exemptions

• The suspension of personal exemptions is made permanent, but a new $6,000 deduction for seniors (age 65+) is introduced for 2025–2028, phasing out at higher incomes [3].

Temporary Deductions for Targeted Income (2025–2028)

• No Tax on Tips: Up to $25,000 of qualified tips per year can be deducted, phasing out at $150,000 ($300,000 joint) of modified AGI. Applies to both employees and self-employed in eligible occupations [3].
• No Tax on Overtime: Up to $12,500 ($25,000 joint) of qualified overtime pay can be deducted, with the same phaseout as above.
• No Tax on Car Loan Interest: Up to $10,000/year of interest on loans for new, U.S.-assembled vehicles is deductible, phasing out at $100,000 ($200,000 joint) of modified AGI. Only applies to new vehicles for personal use [3].

Child and Family Benefits

• Child Tax Credit: Increased to $2,200 per child, made permanent, and indexed for inflation. Stricter SSN requirements apply [3].
• Adoption Credit: Up to $5,000 of the credit is refundable, with the maximum credit indexed for inflation. Indian tribal governments can now determine special needs status [3].
• Dependent Care Benefits: The exclusion for employer-provided dependent care assistance is increased to $7,500 ($3,750 MFS) [3].

Itemized Deductions

• SALT Deduction: Temporarily increased to $40,000 ($20,000 MFS) for 2025–2029, with a phase-down for high incomes, reverting to $10,000 after 2029 [3].
• Charitable Deductions: A new $1,000 ($2,000 joint) above-the-line charitable deduction is made permanent for non-itemizers. For itemizers, only contributions exceeding 0.5% of AGI are deductible; for corporations, only contributions exceeding 1% of taxable income are deductible [3].
• Miscellaneous Deductions: The suspension of most miscellaneous itemized deductions is made permanent, except for educator expenses [3].

Other Individual Provisions

• Estate and Gift Tax: The exemption is permanently increased to $15 million per decedent, indexed for inflation [3].
• Alternative Minimum Tax (AMT): Higher exemption and phaseout thresholds are made permanent, with modifications to inflation adjustments and phaseout rates [3].

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2. Business Tax Provisions

Expensing and Depreciation

• 100% Bonus Depreciation: Made permanent for qualified property acquired after January 19, 2025. This allows immediate expensing of most short-lived business investments [10].
• Section 179 Expensing: The limit is increased to $2.5 million, with a phaseout at $4 million, both indexed for inflation [9].
• Special Expensing for Structures: A new 100% deduction is allowed for certain nonresidential real property used in qualified production activities [9].

Research and Development

• R&D Expensing: Full and immediate expensing of domestic R&D costs is made permanent. Foreign R&D must still be amortized over 15 years [9].

Business Interest Deduction

• Section 163(j): The EBITDA-based limitation (30% of earnings before interest, taxes, depreciation, and amortization) is restored and made permanent, increasing allowable interest deductions [9].

Pass-Through Deduction

• Section 199A: The 20% deduction for qualified business income is made permanent, with a higher phase-in threshold and a $400 minimum deduction for active business income [3].

Other Business Provisions

• Paid Family and Medical Leave Credit: Made permanent and expanded to include insurance premiums [3].
• Employer-Provided Child Care Credit: Increased to $500,000 ($600,000 for small businesses), with higher credit rates and expanded eligibility [3].

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3. International Tax Provisions

GILTI/NCTI and FDII/FDDEI

• GILTI Renamed: Global Intangible Low-Taxed Income (GILTI) is renamed Net CFC Tested Income (NCTI). The deduction is reduced from 50% to 40%, raising the effective tax rate on NCTI to 12.6% [6].
• FDII Renamed: Foreign-Derived Intangible Income (FDII) is renamed Foreign-Derived Deduction Eligible Income (FDDEI), with the deduction reduced from 37.5% to 33.34% [6].
• QBAI Exclusion Repealed: The exemption for a deemed return on tangible assets is eliminated, broadening the NCTI base [7].
• Foreign Tax Credit (FTC): The FTC for NCTI is increased from 80% to 90% of foreign taxes paid, but no carryforward is allowed. Expense allocation rules are relaxed, so no interest or R&D expense is allocated to NCTI for FTC purposes, reducing double taxation [7].

Other International Changes

• Permanent CFC Look-Through Rule: Section 954(c)(6) is made permanent [6].
• Repeal of One-Month Deferral: The election for a one-month deferral in the taxable year of specified foreign corporations is repealed [6].
• Restoration of Downward Attribution Limitation: Section 958(b)(4) is restored, limiting downward attribution for CFC status, but new rules (section 951B) apply to foreign-controlled U.S. shareholders [6].
• BEAT Rate Increase: The Base Erosion and Anti-Abuse Tax (BEAT) rate is increased to 10.5% [6].

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4. Energy and Credits

Phaseout/Termination of Green Energy Credits

• Most clean energy credits from the Inflation Reduction Act (e.g., clean vehicle, residential energy, commercial clean vehicle, and energy efficient home improvement credits) are terminated or phased out earlier than previously scheduled [3].

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5. Other Notable Provisions

Charitable Giving

• New above-the-line deduction for non-itemizers and a floor for itemizers/corporations, as described above.

Opportunity Zones

• The program is renewed and reformed, with a decennial re-designation process and new rules for rural areas [3].

Remittance Tax

• A new 1% excise tax is imposed on certain cash remittance transfers outside the U.S., collected by remittance providers [3].

Employee Retention Credit (ERC)

• No credits or refunds for ERC claims filed after January 31, 2024. New penalties and extended assessment periods for improper claims [3].

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6. Fiscal and Economic Impact

• The OBBBA is projected to reduce federal revenues by approximately $5 trillion over 10 years, with a dynamic score (accounting for economic growth) reducing the loss to about $4.1 trillion [8].
• The law is expected to increase long-run GDP by about 1.2%, but the accompanying tariffs and spending cuts offset some of these gains and disproportionately affect lower-income households [4].
• The distributional impact is regressive overall, with the largest after-tax income increases for middle- and upper-middle-income taxpayers, and smaller or negative changes for the lowest quintile by 2034 [8].

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7. State Tax Implications

• Many states conform to the federal tax code, so changes such as the higher standard deduction, expanded expensing, and new deductions for tips, overtime, and car loan interest may flow through to state tax systems, depending on each state’s conformity rules [5].

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Summary of Impact on Taxpayers

• Individuals: Most will see continued lower tax rates, a higher standard deduction, and expanded family credits. Some will benefit from temporary deductions for tips, overtime, and car loan interest. High-income taxpayers benefit from a higher SALT cap (temporarily) and a larger estate tax exemption. The code is more complex, with new targeted deductions and phaseouts.
• Businesses: Benefit from permanent 100% bonus depreciation, R&D expensing, a higher Section 179 limit, and a more generous business interest deduction. International tax changes are a mix of base-broadening and relief, with a higher effective rate on foreign income but more generous FTC rules.
• Charities and Nonprofits: New deduction floors and expanded excise taxes on high compensation and endowments.
• Overall: The law is pro-growth but regressive, increasing after-tax incomes most for middle- and upper-income groups, while reducing or eliminating many green energy incentives and increasing the deficit .

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In summary, the OBBBA makes permanent the TCJA’s tax cuts, introduces new targeted deductions, expands business expensing, reforms international tax rules, and phases out many green energy credits. While it provides tax relief and certainty for many, it increases complexity, is regressive in distribution, and adds significantly to the federal deficit.

Cited sources:

[1] Sec. 1 Tax imposed: https://app.askbluej.com/source/26fa06b0-8e5a-5f85-bedf-14fc5d6592c3

[2] Sec. 63 Taxable income defined: https://app.askbluej.com/source/272d6b9e-7ae5-5952-8a3b-f0f16033f8b2

[3] https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions

[4] Special Reports: Tax Reform After the One Big Beautiful Bill Act: https://www.taxnotes.com/lr/resolve/7t79v?src=abj1

[5] Viewpoint: State Tax Implications of the One Big Beautiful Bill Act: https://www.taxnotes.com/lr/resolve/7swph?src=abj1

[6] Special Reports: One Big Beautiful Bill Act Takes Center Stage Among Rule Changes: https://www.taxnotes.com/lr/resolve/7ss19?src=abj1

[7] News Analysis: The OBBBA’s International Revenue Raisers, Losers, and Fixes: https://www.taxnotes.com/lr/resolve/7sshn?src=abj1

[8] https://taxfoundation.org/research/all/federal/one-big-beautiful-bill-act-tax-changes/

[9] https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2025/05/kpmg-report-methods-one-big-beautiful-bill-may-15-2025.pdf

[10] https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2025/05/kpmg-report-accounting-for-income-taxes-one-big-beautiful-bill-may-15-2025.pdf

Additional relevant sources:

https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions

Blue J Resource: P.L. 119-21 (H.R. 1, One Big Beautiful Bill Act, OBBBA) Summary: https://app.askbluej.com/source/c2ccb522-d0ee-5718-a114-e924e9e5172e

https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2025/05/kpmg-report-cab-one-big-beautiful-bill-may-15-2025.pdf