Tax Changes for Parents Under the 2025 One Big Beautiful Bill Act

The 2025 OBBBA significantly lowers taxes for most and raises them for some.

Many parents do not fully understand the tax changes contained in the One Big Beautiful Bill Act of 2025, which President Donald Trump pushed through Congress with much fanfare and amidst much controversy. Most media reports focused on this controversy rather than on the substantive provisions and their implications for American families. This page sets aside these controversies and concentrates solely on the substantive changes.

The experienced professionals at Phoenix Tax Consulting not only know the law. They also know how to make the law work for people like you. Our tax planners must adhere to continuing education requirements that exceed industry standards in many ways. So, we are never blindsided by significant changes buried deep inside government documents. Instead, we proactively use these changes to help keep more money in your pocket.

2017 Tax Cuts Permanently Extended

The clock was ticking on the revised tax brackets, which went into effect in 2017. Those brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) were scheduled to expire in 2026, at which point the previous tax levels would take effect.

One Big Beautiful Bill sets these income tax brackets in stone. So, most working families should see lower tax bills year after year.

Standard Deduction and Child Tax Credit (CTC) Increase and Reform

The same rules apply to the increased standard deduction lawmakers approved in 2017. The $29,200 standard deduction for joint filers (roughly $14,600 for single taxpayers) is now permanent.

Moreover, starting in tax year 2025, the child tax credit increases from $2,000 to $2,200 per qualifying child. That extra 10 percent makes a significant difference. But there is some fine print to consider.

The credit will be indexed for inflation beginning in 2026. So, the $2,200 figure is not set in stone. However, the refundable portion of the CTC, which is also known as the Additional Child Tax Credit, is permanent.

Expanded Deductions

Some of these expanded deductions are only available to taxpayers who itemize. Others are available if the taxpayer uses the standard deduction. A Phoenix tax professional should do your return, so you take full advantage of all the new loopholes. These expanded deductions include:

• Overtime Deduction: This new deduction might be the most widely applicable one. A “No Tax on Overtime” rule lets workers deduct part of their overtime pay (up to $12,500 for single filers and $25,000 for joint filers) from taxable income.
• Tips Deduction: The “No Tax on Tips” provision allows service industry workers to deduct up to $25,000 of reported tips from taxable income. This rule could significantly lower the tax bill for wait staff and other positions that rely heavily on tips.
• Auto Loan Interest Deduction: To offset commuting costs, OBBBA includes a new limited deduction on interest for personal vehicle loans. Caps and phase-outs apply. Another vehicle tax change helps pay for all these new deductions and reductions. More on that below.
• Senior Deduction: Taxpayers over 65 may add $6,000 to their standard deductions, on top of regular deductions.

These deductions target middle-income earners, hourly workers, and seniors, giving more flexibility to reduce taxable income.

Moreover, OBBBA temporarily increases the state and local tax (SALT) exemption from $10,000 to $40,000. The expansion expires in 2029. This expanded deduction is significant in New York, New Jersey, California, and other high-tax states.

Notable Tax Increases

A new remittance excise tax applies to foreign money transfers. The rate varies significantly, mainly depending on the destination country and transaction type. Most merchants will levy this tax at the point of sale.

Lawmakers believe the remittance excise tax will raise revenue and discourage large, untaxed cash transfers out of the U.S. It may slightly increase the costs for people who regularly send money overseas.

Gone also are the clean-energy and electric-vehicle (EV) tax credits created under the Inflation Reduction Act. It applies to EV purchases, solar installations, and energy-efficient home upgrades. While consumers and businesses will see fewer clean-energy incentives over time, some fossil fuel leasing and production incentives will expand.

For more information about other tax preparation strategies, contact us online or call 610-933-3507.