OBBBA Tax Changes

The “One Big Beautiful Bill Act” (OBBBA) was officially signed into law on July 4, 2025, and included numerous changes to individual, business, and trust and estate taxes, as well as to several federal programs, like Medicare, Medicaid, and SNAP, among many others. While many individuals and businesses will be impacted by the changes to the programs, this article focuses on the major tax law changes, and which ones are effective immediately.

Several changes in OBBBA are merely extensions from the Tax Cuts and Jobs Act of 2017 (TCJA) and those extensions will maintain the status quo since TCJA’s implementation; however, there are many new provisions or tweaks to TCJA tax items.

Note, while many items are noted as “permanent”, permanent just means that the tax provision does not have a specified end date in the Internal Revenue Code and future legislation may terminate the tax provision.

A summary of the tax changes most likely to have an impact on our clients are below. Anderson Hunter is here to help clients navigate the complex legal and tax changes from the OBBBA.

OBBBA Business Taxes and Reporting:

1. Reporting.

The biggest change and expense for businesses may be reporting requirements under the OBBBA. Given the changes for individual taxes, like the tips and overtime deductions (see the individual tax section), business reporting will be updated.

a. Overtime. If you pay employees overtime, expect to separately state the overtime portion of the payments on Form W-2 or Form 1099s at year end. The overtime portion is the portion that exceeds the standard pay rate. For 2025, businesses are allowed to estimate, initially, when preparing the amount.

b. Tips. If you pay employees tips in an industry that “traditionally” receives tips, then you likely are already tracking tips separately; however, small businesses may not be tracking the tip detail. Be prepared to report tips as part of Form W-2 and Form 1099s at year end. Additionally, tips that are not “voluntary”, like a gratuity that is automatically added to the check, are not expected to be “tips” for the tips deduction (although they are for the tips credit). Therefore, plan to track those tips separately, if your systems allow for that.

c. Form 1099-NEC and Form 1099-MISC. Starting in 2026, the minimum payments to a business or individual required to report on a Form 1099 increases from $600 to $2,000.

d. Form 1099-Ks. In addition to the changes for Form 1099s above, retroactive to 12/31/2021, Form 1099-Ks are only required to be sent if total transactions exceed 200 and total revenue from transactions exceeds $20,000.

i. Form 1099-Ks are received from payment processors for selling goods and services. Generally, they are sent by third party marketplaces, like Amazon, Etsy, and Ticketmaster, or payment processors.

2. Tips Credit.

Historically, the tips credit has allowed businesses to receive a tax credit for the employer portion of FICA (social security and Medicaid tax) paid on tips. The credit has generally been available to restaurants but not many other industries. The OBBBA extended the credit to barbers/hair salons, nail care, aesthetics, and for body and spa treatments. The employees must be paid at least the federal minimum wage (WA minimum wage exceeds the federal) and only applies to tips.

a. We can assist in talking with your tax preparer on whether your business qualifies for the expanded tips credit.

3. QBI Deduction.

Technically an individual deduction, the qualified business income deduction allows partnerships and S-corporations (flow through taxpayers) to receive a 20% deduction on their income to attempt to mirror the reduced tax rates for C corporations. QBID, introduced by the TCJA, was set to expire but was made permanent. Ultimately, the OBBBA made changes to the phase out and minimum deductions, which primarily begin in 2026, however, the main update is making the deduction permanent.

4. Bonus Depreciation.

Under TCJA, bonus depreciation was 100% for several years but has phased out by a reduction of 20% over the last few years. Prior to OBBBA, bonus depreciation for 2025 was 40%. OBBBA reinstates 100% bonus depreciation for assets acquired after 1/19/2025 (including the binding contract being signed after 1/19/2025).

a. As a reminder, bonus depreciation is available on most personal property assets (i.e., not long-term assets) including new or used assets. Bonus depreciation also allows a business to generate a loss for tax purposes while Section 179 depreciation does not.

5. R&D Amortization.

Post-TCJA, under Section 174 research and development (R&D) expenses were required to be capitalized for tax years beginning after 2021. Domestic expenses were amortized over 5 years and foreign expenses were amortized over 15 years. OBBBA returned domestic R&D expenses to 100% deductibility, or a business can elect 5-year or 10-year amortization. Additionally, small businesses can deduct the expenses retroactively via an accounting method change and amended returns. All businesses may choose to accelerate the amortization on their 2025 return or over 2025 and 2026 ratably.

a. Note, foreign R&D expenses are still required to be capitalized and amortized over 15 years.

b. Businesses that elect the R&D tax credit may need to revisit their approach to the credit given the 100% deductibility of eligible R&D costs. We can assist businesses in working with their tax preparers and the best approach for taking the R&D credit.

OBBBA Individual Taxes:

1. An increase to the Standard Deduction.

Starting in 2025, the standard deduction increased from $29,200 to $31,500 for married couples filing jointly. Single filers will see an increase from $14,600 to $15,750. The standard deduction will continue to adjust for inflation every year. This increase also made permanent the increased standard deduction started by the TCJA and the end to personal exemptions.

2. Senior Deduction.

Starting in 2025, there is a new “Senior Deduction” of $6,000 (to be adjusted for inflation) for individuals who are 65 or older, but this deduction expires at the end of 2028. The deduction phases out at 6% once a taxpayer exceeds $150,000 for married filing jointly and $75,000 for single.

a. This deduction is available whether a taxpayer itemizes or not.

3. Overtime and Tips Deductions.

A new deduction on the overtime portion of overtime wages and a separate deduction for tips received. Note, both deductions expire after 2028.

a. Overtime Deduction. The overtime deduction allows a taxpayer to deduct up $25,000 if married filing jointly or $12,500 if single. The deduction only applies to the overtime portion of pay (i.e., if the standard rate is $20/hr and overtime pay is $30/hr, the deduction only applies to the $10/hr overtime portion). The overtime pay will need to be reported on a W-2 or 1099 by the employer. The deduction phases out beginning at $300,000 for married filing jointly and $150,000 for single filers.

b. Tips Deduction. A deduction is available on taxable tips up to $25,000 and phases out beginning at $300,000 for married filing jointly and $150,000 for single filers. Tips must be voluntarily paid and be received in an occupation that traditionally receives tips (e.g., restaurants, salons, etc.). Tips must be reported on a W-2 or 1099 and self-employed individuals that do not receive a 1099 and barring guidance from the IRS are not expected to be eligible for the tips deduction.

i. Note, tips must be voluntary, therefore gratuities that are mandatory (like for large parties at a restaurant) are not expected to be eligible for the tips deduction and should be reported separately.

ii. For individuals that are self-employed and receive tips, there are potential business structure alternatives that can be implemented to

receive the tips deduction in the event that the IRS does not provide clarification.

4. Estate and Gift Tax Planning.

Under TCJA, the current estate and gift tax exemption was $13,990,000 for 2025. The OBBBA increases the cap to $15 million beginning in 2026. Therefore, per person, there is an additional $1.01 million available for gifting on 1/1/2026.

5. Energy Credits.

The OBBBA accelerated the end date for multiple energy credits to sometime during 2025.

a. Clean Vehicle Credits. Clean vehicle credits for used, new, and commercial EVs will sunset September 30, 2025, at the latest. Delivery of the car needs to be taken on or before September 30, 2025.

b. Residential Energy Credits. Energy efficient home credits for items like heat pumps and energy efficient windows and the solar panel tax credits both expire as of December 31, 2025. The property acquired needs to be purchased, installed, and placed in service (i.e., available to use) before December 31, 2025. Homeowners may need to start discussing with service providers now in order to meet the year-end deadline.

6. Several other changes include but are not limited to:

a. An increase in the state and local tax (SALT) cap for itemized deductions to $40,000 through 2028.

b. An increase to the refundable portion of the child tax credit.

c. A deduction for car loan interest on new cars purchased after 1/19/2025 that have final assembly in the US.

d. Starting in 2026, itemized charitable contribution deductions will have a floor. Taxpayers who do not itemize can deduct contributions if they are to scholarship organizations, generally.

Anderson Hunter is here to help you navigate the complex legal and tax changes from the OBBBA. We look forward to serving you and helping work through the opportunities and challenges of the OBBBA.