The One Big Beautiful Tax Bill Breakdown for the Working Class

New Tax Law Alert: Major Changes That Could Benefit You in 2025 and Beyond

As of July 4, 2025 the Trump administration officially signed into law the “One Big Beautiful Bill Act” which is now considered one of the most significant pieces of tax legislation since the 2017 Tax Cuts and Jobs Act. This new law makes many of the 2017 tax changes permanent and introduces new benefits that will impact millions of Americans starting this year.

We are not here to get political. Our goal is to help you understand how this affects you regardless of whether you are a business owner or employee. Below are several major changes you should know about when preparing for tax season.

Child Tax Credit Increased

The child tax credit was scheduled to drop back down to $1,000 per qualifying child. Under the new bill:

• You may now claim $2,200 for each child under age 17
• You can also claim $500 for other dependents such as college students or elderly parents

This increase provides meaningful relief to families across income brackets.

Overtime Income Now Partially Tax-Free

The new law introduces a federal tax exemption on a portion of overtime pay. Here’s how it works from 2025-2028:

• Single filers earning less than $150,000 can exclude up to $12,500 in overtime pay
• Married couples filing jointly with household income under $300,000 can exclude up to $25,000

Common question: If only one spouse works can the couple still claim the full $25,000?
Answer: Yes. As long as your household meets the income requirement and you file jointly you can claim the full benefit.

Tip Income Exempt Up to $25,000

This one’s real and honestly had me ready to change our entire business model. The new bill from 2025-2028 allows tip income to be federally tax-free up to $25,000 per household — if you work in an industry where tipping is customary.

So for those working in restaurants, salons, hospitality, and similar jobs:

• You can now exclude up to $25,000 in tips from your federal income
• The IRS will release a full list of qualifying industries in October 2025

Important note: No, unfortunately you cannot start asking your clients to “just tip you instead of paying your invoice.” The moment this was made official, I was ready to switch to a tip-based payment method for the upcoming tax season! The IRS says it must be customary and regular in your industry — so unless you’re a server not a service provider you’re out of luck.

Income thresholds:

• Single filers over $150,000 and joint filers over $300,000 do not qualify for the full exemption

Tax Rates Permanently Reduced

Without this bill tax rates were set to increase by 3 to 5 percent in 2026. That increase is now off the table and the lower rates introduced in 2017 are here to stay.

Example: A single filer earning $150,000 will continue to save an estimated $4,500 per year in federal taxes compared to what they would have paid under the old rate schedule.

Standard Deduction Preserved and Increased

The standard deduction is an automatic deduction that every taxpayer qualifies for, which essentially lowers your taxable income. Under the new law, it has been preserved and slightly increased for 2025.

• Single filers: $15,750‍
• Head of household: $22,000‍
• Married filing jointly: $31,500

Before this bill the standard deduction was set to drop all the way back to $6,350 for single filers and $12,700 for married couples. That would have meant thousands more in taxable income for most people. So yes this update saved a lot of us a lot of money.

SALT Deduction Cap Raised from $10,000 to $40,000

Previously taxpayers could only deduct up to $10,000 in combined state and local income tax and property taxes also known as SALT. That cap has now been increased to $40,000.

This change is especially valuable if you:

• Live in a high-tax state like California New York New Jersey or Illinois
• Pay significant property taxes
• Make charitable contributions
• Pay mortgage interest

In those cases you may benefit from itemizing instead of taking the standard deduction.

Final Thoughts

These are just a few of the many updates included in the One Big Beautiful Bill Act. More changes are coming especially for business owners investors and retirement savers. We will continue to break down what you need to know as the IRS releases further guidance.

If you are unsure whether you should itemize your deductions or stick with the standard deduction now is the time to schedule a meeting with your tax advisor.

Stay Connected

Follow @WiggsCPA on social media for updates tax tips and invitations to our upcoming webinars.

At Wiggs CPA Tax and Accounting we are here to help you stay organized informed and prepared. Visit WiggsCPA.com to ask a question or schedule your next consultation.

Thanks for reading and we will see you in the next blog post.

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