A major new federal tax law known informally as the One Big Beautiful Bill Act (OBBB) was signed into law July 4, 2025, and it is bringing significant changes to taxes. While some parts of the law will take effect in later years, many changes will show up on the 2025 tax return and could mean larger refunds and lower taxes for some Americans.
One of the biggest changes is that the tax brackets implemented in 2017 are now permanent instead of expiring in 2025. That means that income levels at which you pay different taxes won’t suddenly shift back to higher rates next year. In addition, the standard deduction is larger. Higher standard deductions mean more income is shielded from tax and that can lower the tax you owe.
The Child Tax Credit increases this year giving families with children a larger break on their tax return. Under the new law, some tips and overtime earnings are eligible for a special deduction, which can lower taxable income for those who receive tips or overtime pay. Anyone who bought a qualifying vehicle assembled in the United States may be able to deduct some of their auto loan interest, a benefit that was not available prior to this year. Taxpayers 65 and older can claim an extra deduction on top of the standard deduction as well.
There has been a temporary increase in the amount of state and local tax that can be deducted. Previously, that deduction was capped at $10,000, but that has been raised this year. This is a benefit for those who pay higher local and state taxes.
Some parts of the new law took effect for 2025 while others will not be available until 2026. For most taxpayers, the standard deduction is higher, tax brackets remain favorable and a few new deductions and credits can reduce what you owe. Some of the changes are expected to lower taxes for many working Americans, especially middle- and lower-income households. Average tax relief could total several thousand dollars for many families.
It is important to note that some aspects of the law are temporary and may only apply for a few years. Experts advise taxpayers to review withholdings and to look closely at new credit and deduction options. It is recommended that taxpayers consult a trusted tax preparer, especially this year, as the changes can be confusing.
