Navigating the One Big Beautiful Bill Act: Key Tax Updates for Individuals

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces several significant changes to the US tax code affecting individual taxpayers.  Among the most noteworthy are the permanent extension of lower individual income tax rates, an enhanced standard deduction for all filing statuses, and a revised limitation on itemized deductions.  These provisions, many of which were originally introduced under the 2017 Tax Cuts and Jobs Act (TCJA), provide taxpayers with greater clarity for planning in future tax years. 

Lower Individual Income Tax Rates 

The OBBBA makes permanent the lower individual income tax brackets established under the TCJA, which were scheduled to expire at the end of 2025.  Under the TCJA, the top individual tax rate was reduced from 39.6% to 37% as part of a broad effort to lower rates across income brackets.  Without the OBBBA, this temporary change would have ended, and the top rate would have reverted to 39.6% in 2026.  By making the 37% rate permanent, the OBBBA preserves one of the TCJA’s most significant reductions and avoids a sharp tax increase for higher earners. 

This permanence also prevents many married couples from once again facing the “marriage penalty.”  This penalty arises when married couples filing jointly are pushed into higher tax brackets more quickly than if they were taxed as two single individuals.  It occurs when the bracket thresholds for joint filers are less than double those for single filers, resulting in a higher combined tax bill.  By maintaining bracket thresholds for married couples that are generally twice those for single filers, the OBBBA effectively eliminates this penalty for most taxpayers.  The change is especially meaningful for two-income households with comparable earnings, who are most likely to be affected when their incomes are combined. 

Standard Deduction Permanently Increased 

The OBBBA also permanently increases the standard deduction, with amounts rising for all filing statuses in 2025 and again in 2026.  Seniors (age 65 and older) will continue to receive an additional amount of standard deduction; however, for tax years 2025 – 2028, they will receive a new additional $6,000 deduction, subject to income-based phaseouts.   Seniors’ adjusted gross income must be below $75,000 (single) or $150,000 (joint) to claim the full $6,000 deduction, which will be reduced by 6% on any income exceeding the aforementioned threshold.  See table below:  

Because the standard deduction is now significantly larger, fewer taxpayers are expected to itemize deductions each year.  For those close to the threshold, the timing and grouping of deductible expenses (i.e., itemized deductions) within a tax year can influence whether itemizing remains advantageous.  Aligning deductions in this way can allow a taxpayer to itemize in one year and then claim the standard deduction in the next, improving their overall position over time. 

Itemized Deduction Limitation for High Income Taxpayers Revised 

The OBBBA permanently repeals the prior Pease itemized deduction limitation and replaces it with a simpler rule.  Under the former Pease provision, which was suspended under the TCJA, high-income taxpayers could see their itemized deductions (such as mortgage interest, charitable contributions, and state/local taxes) reduced by as much as 3% of income above certain thresholds.  Under the TCJA, high-income taxpayers could claim their full itemized deductions without any Pease limitation.  The OBBBA, instead of reducing deductions by a flat percentage such as Pease’s 3%, applies a smaller reduction – 2/37 of the lesser of total itemized deductions or the amount of taxable income over the threshold for the top (37%) tax bracket. 

Although the limitation still applies to higher-income taxpayers, the updated formula is generally less punitive and easier to anticipate.  In some cases, it may be advantageous to group deductible expenses into a single year, as the reduction is typically less severe than it was under the prior rules. 

Miscellaneous Itemized Deductions Permanently Eliminated 

The OBBBA also permanently eliminated miscellaneous itemized deductions, except for educators, for unreimbursed employee expenses.  Prior to the TCJA, taxpayers who itemized were able to deduct certain miscellaneous expenses such as investment expenses, tax preparation fees, and certain unreimbursed employee expenses that exceeded 2% of their adjusted gross income.  These deductions were suspended under the TCJA and were set to return in 2026.  Under the OBBBA, taxpayers will be permanently disallowed miscellaneous itemized deductions except for qualifying educator expenses.  Educator expenses refer to unreimbursed costs incurred by teachers, instructors, counselors, principals, or aides for classroom supplies, professional development, and other job-related items.   

For 2025, qualifying educators may still claim an above-the-line deduction of up to $300 (or $600 for married educators filing jointly if both qualify) under the TCJA.  Beginning in 2026, the deduction becomes an itemized deduction on Schedule A, and the $300 cap is removed.  However, since the deduction will only be available to those who itemize, educators who claim the standard deduction will no longer be eligible to deduct these expenses.  As noted previously, it may be beneficial for qualifying educators to group deductible expenses into a single year to maximize the tax benefit by itemizing in one year and taking the stand deduction in the next.  

What Taxpayers Should Do Now 

The OBBBA provides taxpayers with a more stable and predictable tax environment.  Lower rates are permanent, the standard deduction is higher, and the itemized deduction limitation is less restrictive than before.  

These changes may prompt a closer look at withholding, savings strategies, and the timing of deductions.  Taking the time to evaluate how the new provisions align with one’s overall financial picture can help identify opportunities to benefit from the updated rules.