The IRS has published its central guidance hub for the Working Families Tax Cuts (Public Law 119-21), signed into law on July 4, 2025 — commonly referred to as the One Big Beautiful Bill. The law introduces significant changes for individuals, families, healthcare, and business owners, most of which apply for tax years 2025 through 2028. Here is a plain-language overview of the major provisions.

Individuals and Workers

Higher Standard Deductions

For 2026, the standard deduction increases to:

• $32,200 — Married Filing Jointly
• $16,100 — Single or Married Filing Separately
• $24,150 — Head of Household

(Amounts are slightly lower for 2025.)

"No Tax on Tips"

A new above-the-line deduction allows workers in tip-based occupations to deduct qualified tips — including cash tips, charged tips, and tip-sharing amounts — from their taxable income. Key rules:

• Maximum deduction: $25,000
• Phases out above $150,000 MAGI ($300,000 for joint filers)
• Requires a valid SSN and joint filing if married
• Self-employed individuals are limited to net business income
• Certain service businesses (SSTBs) face additional restrictions

"No Tax on Overtime"

Workers who receive overtime pay under the Fair Labor Standards Act can deduct the premium portion of that pay — the "half" in time-and-a-half — from their taxable income.

• Maximum deduction: $12,500 ($25,000 for joint filers)
• Same income phase-outs as the tips deduction

"No Tax on Car Loan Interest"

Interest paid on loans for personal-use vehicles with final assembly in the United States is now deductible.

• Eligible vehicles: cars, trucks, SUVs, and motorcycles under 14,000 lbs GVWR
• Maximum deduction: $10,000
• Phases out above $100,000 MAGI ($200,000 for joint filers)
• VIN required; leases do not qualify
• Loans must originate after December 31, 2024

Senior Deduction

Taxpayers age 65 and older receive an additional $6,000 deduction per person ($12,000 for a qualifying couple). This is on top of the existing additional standard deduction for seniors and phases out above $75,000 MAGI ($150,000 for joint filers).

Other Individual Updates

• Estate tax exclusion rises to $15 million for 2026
• Updated AMT exemption amounts
• Higher adoption credit maximums
• Expanded employer childcare credit

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Families and Dependents

Trump Accounts

The law creates a new tax-advantaged savings account for eligible children:

• One-time $1,000 federal contribution per eligible child
• Additional contributions up to $5,000 per year (employers may contribute up to $2,500, which is deductible/excludable)
• Funds must be invested in qualifying U.S. stock-index funds or ETFs
• Accounts are generally locked until the year the child turns 18, then treated like a traditional IRA
• Contributions began July 4, 2026

Adoption Credit

Up to $5,000 of the adoption credit (inflation-adjusted) becomes refundable. Note that carryforward amounts do not count toward the refundable portion.

Child and Dependent Care Credit

Starting in 2026, the maximum credit rate increases from 35% to 50% of qualifying expenses. The expense limits remain unchanged at $3,000 for one qualifying individual and $6,000 for two or more.

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Healthcare

Health Savings Accounts (HSAs)

Several HSA rules are expanded:

• Telehealth/remote care is permanently allowed before meeting the HDHP deductible without losing HSA eligibility
• Starting 2026, bronze and catastrophic health plans qualify as HSA-eligible high-deductible health plans
• Certain direct primary care arrangements now allow HSA contributions and tax-free fee payments

Premium Tax Credit

Repayment limitations on excess advance premium tax credit payments are removed for tax years after 2025. Temporary COVID-era rules are also cleaned up.

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Clean Energy: Mostly Phase-Outs

The law significantly curtails clean energy incentives:

• Clean vehicle credits (new, used, and commercial) end for vehicles acquired after September 30, 2025
• Energy Efficient Home Improvement Credit (25C) and Residential Clean Energy Credit (25D) end for property placed in service after December 31, 2025
• Additional restrictions apply to production and investment credits tied to prohibited foreign entities
• Some modifications and extensions remain for clean fuel production credits (Section 45Z), with tightened feedstock and emissions rules

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Other Notable Provisions

Investment and Rural

• Enhanced Opportunity Zone rules for rural areas, including a lower substantial-improvement threshold
• Tax exclusion for 25% of interest income on qualifying farm and rural real-property loans
• Installment sale treatment for gains on sales of qualified farmland to qualified farmers

Charitable Giving

• Permanent above-the-line deduction for cash charitable contributions by non-itemizers: $1,000 for single filers, $2,000 for joint filers, starting 2026
• New federal Scholarship Tax Credit for donations to Scholarship Granting Organizations (starting 2027, state participation required)

Business

• Restoration of current expensing for domestic research and experimental (R&E) expenditures
• New claim mechanism for recovering excise taxes on dyed diesel or kerosene used for nontaxable purposes
• Various other business provisions linked from the IRS guidance page

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What You Should Do Now

Many of these provisions have income phase-outs, eligibility tests, and specific reporting requirements. The IRS has updated the Tax Withholding Estimator and introduced a new Schedule 1-A for the additional deductions. Transition relief applies for some 2025 reporting requirements, particularly for tips, overtime, and car loan interest.

If any of these changes apply to your situation — especially the tips, overtime, or senior deductions — now is a good time to review your withholding and gather documentation before filing season.

Source: IRS — Working Families Tax Cuts

Automated Business Service prepares individual and business returns for clients throughout the High Desert and across 48 states. Contact us or schedule an appointment to discuss how these changes affect your return.