Understanding the One Big Beautiful Bill Act: Key Income Tax Changes for 2025
Part 1 of Our Two-Part Series on What the New One Big Beautiful Bill Act Legislation Means for Your Finances
The recently signed One Big Beautiful Bill Act spans nearly 900 pages and touches everything from defense spending to Medicaid funding. While much of it won’t affect the average household, several provisions directly influence personal income taxes, and some of them are retroactive to the beginning of 2025. Our goal is to extract the changes that matter most and explain how they may shape your tax planning for the coming year.
As always, this overview is for educational purposes only and should not be considered tax or investment advice. Speak with your Personal Wealth Advisory team or your tax professional before taking action.
A Massive Piece of Legislation and a Massive IRS Challenge
Despite sounding like a nickname, the One Big Beautiful Bill Act is indeed the law’s official name. Because it references thousands of pages of tax code, the IRS now faces the enormous task of interpreting the rules, rewriting reporting requirements, and implementing enforcement. They must also accomplish all of this while operating with a significantly reduced workforce. Some elements of the law may be clarified or phased in gradually as the IRS determines how to apply them.
Several provisions apply immediately and will show up on your 2025 tax return, even though the year is already underway. Other provisions begin later. As with any major legislation, additional IRS guidance is likely throughout the year.
Current Tax Brackets Made Permanent
One of the most significant changes is the permanent extension of the income tax brackets created under the 2018 Tax Cuts and Jobs Act (TCJA). Without this legislation, those brackets would have expired after 2025, causing a return to the higher pre-2018 rates. By making today’s brackets permanent, Congress provides taxpayers with more predictability and a clearer foundation for long-term planning, especially when evaluating strategies that involve shifting or smoothing income across multiple years. To compare your current bracket with the upcoming changes, explore the complete 2025 and 2026 federal income tax brackets here.
The Higher Standard Deduction Is Also Permanent
The TCJA nearly doubled the standard deduction while eliminating most personal exemptions. The One Big Beautiful Bill Act solidifies those higher deduction amounts and slightly increases them for 2025. These changes will appear on 2025 tax returns for single filers, married couples, and those age 65 or older, and they will continue to make itemizing less common for many households.
A New Personal Exemption for Individuals 65+ (2025–2028)
Although exemptions were eliminated in 2018, the new law introduces a temporary revival: a $6,000 personal exemption for each taxpayer age 65 or older. This exemption applies to tax years 2025 through 2028 and comes in addition to a standard or itemized deduction. For married couples where both spouses are 65 or older, the combined amount totals $12,000.
However, the exemption is subject to an income phase-out. Taxpayers with modified adjusted gross income (MAGI) below $75,000 qualify for the full amount, while those between $75,000 and $150,000 see it gradually phased out until it disappears entirely. Joint filers follow a similar pattern with proportionally higher thresholds.
For retirees, this creates a new strategic consideration. Planning decisions that increase MAGI, such as Roth conversions, IRA withdrawals, or realizing capital gains, may reduce or eliminate eligibility for the exemption. Coordinating these decisions across tax years becomes even more important.
Lifetime Gift and Estate Tax Exemption Becomes Permanent
Another major component of the act involves estate planning. The federal lifetime gift and estate tax exemption, which was $5.45 million per person in 2018, is scheduled to rise to $15 million per person in 2026. The new law makes this increased threshold permanent, meaning a married couple can shield nearly $30 million from federal estate taxes, assuming assets transfer between spouses and then to heirs.
Because the exemption is indexed to inflation, it will continue to rise over time. As a result, many families who once needed detailed estate planning to avoid federal estate tax may find that they are well below the new threshold. This provision takes effect in 2026, giving families time to evaluate long-term strategies.
No Change to Social Security Taxation
Despite widespread assumptions and campaign messaging, the legislation does not change how Social Security benefits are taxed. The long-standing rules remain fully in place. Depending on your income, anywhere from zero to 85 percent of your Social Security benefits may be taxable, and the taxable portion is treated as ordinary income. Higher annual income pushes taxpayers toward the upper end of that range. If your benefits were taxed in prior years, you should expect similar treatment going forward unless future legislation provides new guidance.
What’s Next for Understanding the One Beautiful Bill Act
This concludes Part 1 of our summary of the One Big Beautiful Bill Act. In Part 2, we’ll walk through additional provisions, some of which affect retirement accounts, charitable strategies, and other areas that may influence your long-term financial planning.
If you are nearing retirement and would like tips on how to optimize your tax situation, download our guide, 3 Big Retirement Tax Mistakes.
Finally, if you’d like a personalized review of how the legislative changes we covered in this article may affect your individual tax or retirement strategy, contact Personal Wealth Advisory to schedule a conversation with our team. And be sure to subscribe to our email newsletter list to stay informed with insights that help you protect your business and plan with confidence.