How the OBBBA Impacts Different Taxpayers

The centerpiece of the One Big Beautiful Bill Act (OBBBA) is the extension of current income tax rates and brackets that were due to expire at the end of the year.

In addition, there are new tax provisions, or changes to existing provisions, which could lead to significant tax savings for individuals.

Since many of these changes go into effect for tax year 2025, it will have an immediate affect on many taxpayers.

Recently, the IRS announced that it would not alter tax withholding tables for 2025. As a result, higher-than-normal tax refunds are projected for tax season 2026. Some initial projections point to the highest level of tax refunds issued in the last 15 years.¹

That presents opportunities to put these tax savings to work. Depending on certain factors, the changes will impact certain taxpayers differently.

Here are some examples of how the tax law could impact 2025 tax returns for different types of taxpayers.

1. Married couple living in a high-tax state

Assume modified adjusted gross income of $400,000
The couple has two children, ages 10 and 13, and can claim the full Child Tax Credit (which was $4,000 total before the OBBBA, and $4,400 as a result of the OBBBA)
They donate $10,000 to charity and can deduct $10,000 in mortgage interest
They can deduct the maximum $40,000 of state and local taxes (SALT) under the new OBBBA deduction limit

The new tax law generates savings of $7,600. As a result of the OBBBA, the couple increased their deductions by itemizing and taking advantage of the higher SALT deduction cap, They also benefited from the slightly higher child tax credit.

2. Married couple both age 65+

Assume modified adjusted gross income of $150,000 so they qualify for the new senior deduction of $6,000 each
They are also claiming the standard deduction

The new tax law generates a savings of $3,322. The taxpayers benefit from the new senior deduction and a slightly higher standard deduction resulting from the OBBBA.

3. Single worker receiving overtime and tips

Assume modified adjusted gross income of $120,000
Taxpayer received $10,000 in overtime compensation and $10,000 from tips
Claiming the standard deduction, which was $15,000 prior to the OBBBA and $15,750 after the OBBBA

The new tax law generates savings of $4,598.

As a result of the OBBBA, the taxpayer can now deduction earnings from overtime and tips. The taxpayers also benefit from a slightly higher standard deduction under the OBBBA.

Taking advantage of these tax savings

Some taxpayers may want to consider certain strategies to make the most of these tax savings. For example, does a partial Roth conversion before the end of the year may make sense. For many individuals, this represents a sound strategy for utilizing some of these tax savings while creating a source of tax-free income in retirement. Taxpayers may also be able to harvest some capital gains at a lower cost from a tax perspective. Lastly, those receiving a higher tax refund in 2026 may want to consider increasing savings in an emergency account, for example, or making a contribution to a retirement account or other savings vehicle such as a 529 college savings plan. Taxpayers should consider reaching out to their advisor to discuss potential strategies that may make sense based on their particular circumstances.

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Endnote

¹Source: J.P. Morgan, “The investment implications of the refund surge,” August 25, 2025.

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