Key Updates for Individuals and Employers
The recently signed Big Beautiful Bill introduces sweeping tax changes for individuals and businesses starting in 2025 and 2026. While the bill covers various areas of economic policy, our team at [Firm Name] is focused on the provisions that directly impact individual taxpayers, employers, and payroll compliance.
Here’s a breakdown of the most relevant tax and payroll updates you need to prepare for:
1. Permanent Individual Tax Cuts
The bill makes permanent the individual tax cuts originally passed in the 2017 Tax Cuts and Jobs Act (TCJA), including:
- Retaining current brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%
- Standard deduction increases in 2025 to:
- $15,750 for single filers
- $23,625 for heads of household
- $31,500 for joint filers
These changes aim to lock in lower effective tax rates for the long term.
2. “No Tax on Tips” Deduction (Temporary)
From 2025 to 2028, workers may deduct up to $25,000 of tip income from their federal taxable income.
- Applies to W-2 reported tips
- Phases out for individuals with AGI over $150,000 ($300,000 for joint filers)
Employers must continue to report all tip income through payroll, but eligible employees will see lower federal tax liability.
3. “No Tax on Overtime” Deduction (Temporary)
Also effective 2025–2028, eligible workers can deduct:
- Up to $12,500 in overtime income (single)
- Up to $25,000 for joint filers
This deduction also phases out above the same $150k/$300k AGI thresholds.
Employers: You’ll still report overtime as usual, but may see changes in employee withholding.
4. $6,000 Deduction for Seniors
From 2025–2028, individuals aged 65 or older can claim an additional $6,000 standard deduction.
- Phases out for married filing jointly over $150,000 AGI
- Phases out for other filers over $75,000 AGI
This effectively lowers taxable income for many retirees on fixed incomes.
5. SALT Deduction Cap Increased to $40,000
The cap on the state and local tax (SALT) deduction jumps from $10,000 to $40,000 for five years (2025–2029), or $20,000 for married filing separately.
- The cap increases 1% annually through 2029
- Reverts to $10,000 in 2030
This is a significant win for taxpayers in high-tax states.
6. Child Tax Credit Raised
The Child Tax Credit increases by $200, bringing the total to $2,200 per qualifying child in 2025.
- The credit is inflation-adjusted starting in 2026
- Full refundability remains under review in future IRS guidance
7. Payroll and Withholding Considerations
While the bill doesn’t overhaul payroll taxes directly, the overtime and tip deductions, as well as expanded deductions for seniors, will have indirect effects on:
- W-4 planning
- Withholding adjustments
- Payroll software updates for deductions and exemptions
Employers should prepare for employee withholding changes in early 2025.
What You Should Do Now
If you’re a business owner, HR manager, or individual looking to benefit from these provisions:
- Review employee classifications and tip/overtime reporting procedures
- Update payroll systems to reflect new income exemptions
- Start 2025 tax planning now to maximize deductions