OBBBA 2026 Explained: What the One Big Beautiful Bill Act Means for Your Taxes

Tax Planning Published May 22, 2026 Updated May 24, 2026

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025 as Public Law 119-21, kept the Tax Cuts and Jobs Act (TCJA) brackets permanent and changed five big-ticket items for 2026: the SALT cap quadrupled to $40,400, the federal estate exemption was locked in at $15 million per person, the Child Tax Credit rose to $2,200, and brand-new temporary deductions for tip income, overtime pay, and seniors took effect. This post walks through what changed, who benefits, and what to plan for before key OBBBA provisions sunset in 2028 or revert in 2030.

What OBBBA Did in 60 Seconds

• TCJA individual rates made permanent: 10%, 12%, 22%, 24%, 32%, 35%, 37% are the seven federal income tax rates indefinitely.
• SALT cap raised to $40,000 in 2025 and $40,400 in 2026, escalating 1%/year through 2029, then reverting to $10,000 in 2030.
• Federal estate/gift/GST exemption permanently $15 million per person starting 2026, indexed for inflation from the 2025 base.
• Child Tax Credit raised to $2,200, up to $1,700 refundable, indexed for inflation.
• Tip income deduction up to $25,000 above-the-line.
• Overtime pay deduction up to $12,500 single / $25,000 MFJ.
• Senior bonus deduction of $6,000 per qualifying senior aged 65+.
• Trump/MAGA Accounts for children open July 4, 2026 with a one-time $1,000 federal seed.

Tax Brackets 2026: Same Rates, New Inflation-Adjusted Thresholds

OBBBA did not change the TCJA rate schedule. What changes annually is the dollar threshold for each bracket, which the IRS publishes in an annual revenue procedure. For 2026 those thresholds come from Rev. Proc. 2025-32:

Head of household uses a separate table with slightly different upper thresholds (24% bracket ends at $201,750, 32% at $256,200). Married filing separately uses the single brackets through the 32% rate and half of the MFJ amount for the 35% and 37% bands.

Standard Deduction Increases

For 2026 the standard deduction (Rev. Proc. 2025-32 §4.14) is:

• Single and married filing separately: $16,100
• Married filing jointly: $32,200
• Head of household: $24,150
• Additional standard deduction for age 65+ or blind: $1,650 per qualifying condition, increased to $2,050 for unmarried filers who are not surviving spouses

Combined with OBBBA's higher SALT cap, the math on whether to itemize changed for many high-tax-state filers. A married couple in New Jersey with $35,000 in state income and property taxes will likely itemize again in 2026 after years of taking the standard deduction.

SALT Cap Jumps to $40,400 (with a Phase-Out at $500,500 MAGI)

The State And Local Tax (SALT) deduction was capped at $10,000 under the original TCJA. OBBBA raised the cap to $40,000 for 2025 and indexed it 1%/year through 2029, then sunsets it back to $10,000 in 2030. For 2026 the cap is $40,400.

There is a phase-down: the cap is reduced by 30 cents for every dollar of modified adjusted gross income above $500,500 (the threshold is the same for single and MFJ in 2026, half that for MFS). The cap is never reduced below the $10,000 floor. A single filer with $600,000 MAGI in 2026 sees the cap reduced by 30% × ($600,000 minus $500,500) = $29,850, so the effective cap is $40,400 minus $29,850 = $10,550.

For most filers in high-tax states the cap raise unambiguously helps. Pass-through entity tax (PTET) workarounds many states added between 2018 and 2024 remain available and are still worth considering for affected pass-through business income, since PTET is paid at the entity level and bypasses the cap entirely.

Estate Tax Exemption Permanent at $15 Million

The federal estate, gift, and generation-skipping transfer (GST) tax exemption had been scheduled to fall by roughly half at the end of 2025 (the TCJA sunset). OBBBA §70106 set the exemption permanently at $15 million per person starting in 2026, indexed for inflation from the 2025 base year. The 40% top rate is unchanged.

For a married couple, portability of any unused exemption (the Deceased Spousal Unused Exclusion, or DSUE) effectively doubles the family exemption to $30 million, provided the survivor's executor files Form 706 even when no tax is owed. Planners who set up disclaimer trusts and SLATs ahead of the anticipated 2026 sunset can re-evaluate, but the $15M floor means most estate planning urgency has eased.

The annual gift exclusion for 2026 is $19,000 per donor per donee. That figure is indexed in $1,000 increments and rises slowly.

Child Tax Credit Rises to $2,200

OBBBA raised the Child Tax Credit to $2,200 per qualifying child under 17, indexed for inflation. The refundable portion (Additional Child Tax Credit) is up to $1,700. Phase-out thresholds for the credit remain $200,000 single / $400,000 MFJ MAGI, with the credit reduced by $50 for each $1,000 of MAGI above the threshold.

Tip Income and Overtime Deductions (New for 2025 to 2028)

Two of OBBBA's most-publicized provisions are above-the-line deductions, not exclusions. Workers still report tip income and overtime on their W-2 and pay FICA; the deductions reduce federal income tax only.

• No tax on tips: up to $25,000 deduction for qualified tips that are voluntary (not service charges or auto-gratuity). Phases out for MAGI over $150,000 single / $300,000 MFJ.
• No tax on overtime: up to $12,500 single / $25,000 MFJ deduction for the "half" portion of time-and-a-half FLSA-required overtime pay (the premium above the regular rate). Same MAGI phase-out.
• Both deductions sunset after the 2028 tax year unless Congress extends them.

The IRS published implementation guidance at irs.gov/obbba. Employers must update W-2 reporting starting with 2025 forms.

Senior Bonus Deduction ($6,000 for 65+)

Taxpayers age 65 or older get an additional $6,000 above-the-line deduction for tax years 2025 through 2028. For married couples where both spouses are 65+, the bonus is $12,000 total. The deduction phases out proportionally for AGI between $75,000 and $100,000 (single) or $150,000 and $200,000 (MFJ). This stacks with, rather than replaces, the regular additional standard deduction for age 65+.

What's NOT in OBBBA

Two items that received campaign attention did not make it into the final OBBBA text:

• Social Security benefits remain taxable under existing IRC §86 rules. Up to 50% of benefits are includible in income above $25,000 single / $32,000 MFJ MAGI, and up to 85% above $34,000 / $44,000. These thresholds were set in 1983 and 1993 and are not indexed for inflation, so they progressively capture more retirees each year. OBBBA did not change them.
• Net Investment Income Tax (NIIT) thresholds are unchanged: 3.8% applies to investment income above $200,000 single / $250,000 MFJ MAGI. These thresholds, set in the Affordable Care Act, are statutory and not inflation-indexed.

Who Wins, Who Phases Out

OBBBA's individual-tax provisions are sharply targeted. Rough generalizations of the winners:

• High-tax-state itemizers with MAGI under $500k: full benefit of the $40,400 SALT cap.
• Households earning under $150k single / $300k MFJ in tipped, overtime-eligible, or 65+ occupations: meaningful new above-the-line deductions.
• Estates between $7M and $30M: the permanent $15M exemption removes urgency around aggressive lifetime gifting that had been pushed by the 2025 TCJA sunset.
• Families with children under 17: $200 extra per kid via the higher CTC.

Phase-out zones to watch:

• MAGI between $500,500 and roughly $600,000 sees the SALT cap shrink rapidly.
• Tip/overtime/senior deductions all phase out by $300k MFJ; for two-earner couples just above the threshold these vanish.
• NIIT still bites at $200k/$250k MAGI; OBBBA did not touch it.

Calendar to Watch

• January 1, 2026: 2026 brackets, OBBBA SALT cap of $40,400, $15M estate exemption, $2,200 CTC all take effect.
• July 4, 2026: Trump/MAGA Accounts open for child beneficiaries with the one-time $1,000 federal seed.
• December 31, 2028: tip, overtime, and senior bonus deductions sunset unless Congress extends.
• December 31, 2029: SALT cap's 1% annual escalator ends at roughly $41,800.
• January 1, 2030: SALT cap reverts to $10,000.

Frequently Asked Questions