Decoding the intricacies of the one big beautiful bill act

The One Big Beautiful Bill Act (OBBBA) has been widely described as major tax reform. In reality, it keeps most existing tax rules in place and introduces only limited, temporary tax breaks. Many of the benefits are misunderstood, income-restricted, or scheduled to expire. Knowing what actually changed—and what did not—is critical for realistic tax planning.

One Big Beautiful Bill Act – legislative text and summary

Social Security taxation remains unchanged

The OBBBA does not eliminate taxes on Social Security benefits. Federal law still taxes benefits based on “provisional income,” which includes adjusted gross income, tax-exempt interest, and half of Social Security benefits. Individuals with provisional income below $25,000 and married couples below $32,000 generally owe no federal tax on benefits. Above those levels, up to 85 percent of benefits may still be taxable.

Internal Revenue Code §86 – Social Security benefits

Temporary deduction for seniors

The Act introduces a temporary deduction for taxpayers age 65 and older, available from 2025 through 2028. Eligible seniors may deduct up to $6,000 per person, or $12,000 for married couples filing jointly when both qualify. The deduction phases out at higher income levels and applies whether or not the taxpayer itemizes deductions. Because the deduction is temporary, income timing matters. IRS Publication 554 – Tax Guide for Seniors

Overtime pay is not tax-free

Overtime wages are still fully subject to Social Security and Medicare taxes. The OBBBA does not change payroll tax rules. Instead, it allows a limited income-tax deduction for the overtime premium only—the portion paid above an employee’s regular hourly rate. The deduction is capped, phases out for higher-income taxpayers, and expires after 2028. Payroll taxes still apply to the full overtime amount. IRS Publication 15 – Employer’s Tax Guide (overtime and payroll taxes)

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The reality of tax-free tips

Tips are not completely tax-free under the OBBBA. The Act provides a limited and temporary exclusion for certain tip income, subject to dollar caps and eligibility rules. Any tips above the cap remain taxable. All tips continue to be subject to Social Security and Medicare taxes. Like other provisions in the Act, this exclusion expires after 2028. IRS Publication 531 – Reporting Tip Income

State tax treatment varies

States are not required to follow federal tax changes. Some states automatically conform to federal law, while others selectively adopt or reject federal provisions. States such as New York, Illinois, and California often decouple from new federal deductions, while others may adopt them fully or partially. Taxpayers must evaluate federal and state tax rules separately.

Conclusion

The One Big Beautiful Bill Act offers limited, temporary tax relief rather than broad reform. Social Security taxes remain unchanged, senior deductions are time-limited, and overtime and tip relief is narrow and does not reduce payroll taxes. These provisions require planning, not assumptions. Understanding the limits and expiration dates is essential to avoid unpleasant tax surprises.

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Schedule a tax preparation appointment.
Schedule a dedicated appointment to review your tax situation, confirm required documents, and move forward with preparing your return.
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