How the 2025 OB3 Tax Bill Affects Retirees, Families, and Small Business Owners

After significant wrangling over the past six months, the 2025 tax bill, dubbed "The One Big Beautiful Bill Act," has passed Congress and has been signed by the President. There's a lot in this bill. It introduces immediate changes in areas like retirement, income taxes, and small business deductions—so even your 2025 strategy may need to shift. If we've been working with you on tax planning this year, we'll work with you to revise our projections and adjust recommendations as necessary. If you're looking to work with a financial planner to help you navigate the changes and new provisions, contact us to set up an introductory call.

At The Dala Group, we’ve been anticipating the likely variations and are prepared with the knowledge and tools to show you the impact and create a plan for your Social Security, retirement accounts, and Roth conversions. Here are the provisions that we think affect our clients most:

What Stays the Same

Two cornerstones of the 2017 Tax Cuts & Jobs Act are receiving clarity.

• Individual Tax Brackets: The individual tax brackets, which were set to rise in 2026, will now stay at their current, lower levels. That means continued tax savings across all income levels compared to what would have happened had the old brackets returned, saving you meaningfully on your tax bill.

• Business Income Deduction: Small business owners can continue to deduct 20% of net qualified business income in addition to the standard deduction. This benefits them by giving an increased deduction on income from their business within limits.

The big deal is that both provisions have been made permanent, eliminating much of the future tax uncertainty.

What’s Changing

Several parts of the tax code are getting immediate updates, and some will have lasting impacts.

• Fast-forward Standard Deduction: Most taxpayers claim the simplified standard deduction when filing taxes. The bill speeds up the indexing of that deduction in 2025 by increasing it by an additional $750 for singles and $1,500 for married couples above the amount that previously applied. A higher deduction removes additional income from being taxed this year for all taxpayers.

• Higher Temp Deduction for Seniors: You may have heard the campaign promise of “No tax on Social Security.” That didn’t happen exactly, but for those age 65 and older, a temporary new deduction will apply on top of the standard deduction, offering an additional $6,000 per qualifying senior in the household from 2025 through 2028 on all income, not just Social Security. This deduction phases out for individuals with income over $75,000 and married couples over $150,000.

• SALT Cap Rises & Grows: One of the more hotly debated changes is the increase in the State and Local Income Tax Deduction (SALT). From 2018 onward, this deduction was capped at $10k per tax filer, which affected anyone who might itemize their deductions while paying property, state, and local income taxes, especially in high-tax states like Illinois. SALT temporarily rises from $10,000 to $40,000 for 2025 through 2029. However, the increased deduction phases out entirely for households earning more than $500,000 per year.

• Ever Expanding Child Tax Credit: Families with children will benefit from an enhanced Child Tax Credit, which increases to $2,200 per child under age 17 for 2025. Even more impactful: beginning in 2026, this credit will be automatically indexed for inflation, so it grows over time. Credits tend to be more advantageous for lower-income earners because they decrease dollar for dollar the taxes you owe.

• Student Borrowing Revised: The student loan and repayment landscape has been murky since 2020, to say the least. The bill clarifies the murkiness by defining a maximum lifetime amount students and parents can borrow and narrows the repayment options. These changes will go into effect in 2026, and borrowers on existing plans will be moved to the new plans by 2028.

What's Brand New (And Maybe Temporary)

• Tips & Overtime Tax Break: Starting in 2025 and running through 2028, workers can deduct up to $25,000 of reported cash tips as an extra deduction from their taxable income. The bill also introduces a provision whereby a single taxpayer can exclude $12,500 and a married couple $25,000 of overtime income. Both provisions have income limits ($150,000 Single/$300,000 married) and precise definitions of what tipped jobs/income and overtime income are eligible.

• Charitable Deduction for Many: If you’re charitably inclined and always take the standard deduction, you couldn’t deduct those gifts specifically through 2025. A new provision in the bill allows non-itemizing taxpayers a deduction of up to $1,000 for singles and $2,000 for married couples starting in 2026. There are income-based floors and caps to consider, so this one will be extra complex to compute, but it creates a new benefit for givers, even if you don’t itemize.

• Early Start on Savings: A new type of quasi-retirement account was created that allows parents and employers to contribute to a tax-deferred account in the name of their child, and the child withdraws penalty-free at age 18. As a bonus, for children born between 2025 and 2028, the government will automatically open one of these accounts on behalf of your child and seed the account with $1,000.

How It’s Funded, and Why That’s Controversial

The most controversial aspect of the bill is how to pay for the extension of the tax rates and additional tax deductions. Starting in late 2026, the law introduces tighter work and income-verification requirements for programs like Medicaid and food assistance as an offset. Supporters argue these rules promote accountability; critics warn they will reduce access to health care and food for vulnerable populations.

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While we have mixed feelings about the changes' implications (increased deficits and debt, impact on health insurance and food assistance, favorable tax treatment on some income, increased tax code complexity), our job is to help you adjust to legislative changes with confidence. Whether you’re navigating retirement income or tax strategy, we’re here to guide you in making the best decision for your family. Have questions? Reach out. We’re ready to offer guidance for your specific situation.