Personal Provisions of the 2025 Tax Act- The Big Beautiful Bill

On July 4, 2025, the 2025 Tax Act was enacted with the President’s signature. Formerly and commonly referred to as the One Big Beautiful Bill (hereafter, the Act), the Act passed the legislative bodies on a party-line vote of 51-50 in the Senate and 218-214 in the House. Since the Act was signed on July 4, this is the date of enactment for certain effective dates in this Act.

The Act began largely as an extension of the provisions of the Tax Cuts and Jobs Act of 2017 (TCJA), which was the President’s signature tax legislative accomplishment of his first term. However, this Act became much more, including a vehicle to enact several of  President Trump’s 2024 campaign promises in terms of new ideas and repealing others.

The legislative process for the Act was somewhat novel. The House passed its reconciliation bill on May 22, 2025, and the Senate passed its version on June 1, 2025. Normally, this results in a reconciliation conference committee tasked with reconciling the two very different measures. However, in this case, perhaps due to the self-imposed July 4 deadline for enactment, the House instead voted to pass the Senate Bill intact, bypassing the conference process, and sending the bill directly to the President for signature.

This also means that, in understanding this Act, the reader does not need to concern themselves with the provisions of the original House legislation or their fate in the legislative process. Focus solely on the Senate bill since those measures were enacted.

There are also state issues in these changes. Many states “piggyback” from federal rules, meaning that you start with federal income or taxable income, and then make the adjustments required by that state. Thus, when the federal government changes any of these calculations, it indirectly changes many states as well. We do not yet know which of these provisions will be accepted by any state.

While there are many important non-tax provisions in the Act, this article focuses on those of tax importance to our personal tax clients. Also, this article does not cover every tax provision, but those of interest to the majority of our client readers. The items are presented in the author’s opinion of the order of relevance to our client base, or based on the author’s opinion of the logical sequence of the subject in relation to other items discussed.

Finally, note that the word “permanent” is featured many times in the Act and in this summary. In tax legislation, permanent means that the provision is not scheduled to expire in the future. It does not mean that there is a promise by the federal government that this rule will always remain. Tax provisions are permanent only until a new Congress decides to change the rule in a way that is more negative or positive to taxpayers.

Commentary: Welcome stability for future income tax rate structures and multi-year tax planning.

Commentary: This measure is a welcome certainty for estate and gift planning for many taxpayers, who have been caught in a cycle of head-snapping changes from year to year.

Commentary:

1.  Note the effective dates – this provision is only effective for four years, setting up the potential extension of this rule as a 2028 election issue.
2. This provision will require that employers notify employees of the amount of their gross pay that constitutes qualifying overtime, presumably on form W-2. This represents additional reporting and record-keeping requirements on employers. Note that, by the effective dates, this provision is retroactive to 1/1/2025, so this additional record-keeping requirement applies to the prior six months.
3. Under the Fair Labor Standards Act of 1938, overtime means time and a half pay for hours worked beyond 40 hours in a workweek.
4. Those married-filing-separately are not eligible.
5. Note that there is some discussion that exempt overtime is only defined as the amount in excess of straight time. So, if someone is making $12 an hour and gets 1.5 times pay for overtime at $18, the exemption is only for the $6 excess pay beyond straight time. The IRS will have to explain how these things work.
6. A higher rate for some work, like a nurse working weekends, is not overtime.

Commentary:

1. Note the same issues as with the tax on overtime (above), except that tips received by a W-2 employee are already separately disclosed on the W-2.
2. The $25,000 cap appears to be the maximum amount, whether the taxpayer is a single filer or a joint filer in which both receive tips.
3. A tip is defined as a voluntary payment that is not the subject of negotiation, and where there is no consequence of nonpayment.
4. If the tip recipient receives the income on a Form 1099, the deduction is limited to the net income after expenses.
5. The tip income remains subject to FICA and Medicare tax.
6. The tip recipient must be in an industry that customarily receives tip income (the IRS is directed to provide such a list). The Act specifically includes barbering and hair care, nail care, esthetics, and body and spa treatments. A worker for a specified service trade or business, as defined in Section 199A, is specifically not someone who customarily receives tip income. Those are generally engaged in accounting, health, law, athletics, consulting, financial services, or the performing arts.
7. There will still be a lot of outstanding issues. For example –
   1. What about the musician at the restaurant with his guitar case open? Is the money he/she collects not a tip if the IRS doesn’t include them on the list?
   2. What about the set 18% or whatever service fee for a large party at a restaurant? Is that a tip? Its not negotiable, and its not eligible for nonpayment.

Commentary: Any taxpayer can benefit – individuals, corporations, trusts, or estates. Note that the taxpayer does not need to be a farmer but can lease the property to a farmer.

Commentary: One of the President’s campaign promises was to exempt Social Security from income taxation. That promise is not specifically in this bill, but this provision is a partial answer to that pledge. Obviously, this provision does not completely exempt Social Security from tax.

Commentary: About 90% of filers claim the standard deduction.

Commentary: As we have done in the past, CPAs will need to ask all tax filers about charitable contributions, whether or not they will itemize, including children.

Commentary:

1. This was one of the Act’s most anticipated changes, and it does so in a taxpayer-favorable way, but only for five years. Expect the continuation of this rule to be a 2028 election-year issue.
2. Note that the House provision that would restrict the ability for SSTBs to bypass this limit by use of the passthrough entity tax (PTE) did not survive into the Senate bill, which is the law.

Commentary: There is a host of administrative issues in any brand-new tax rule. Here, these include –

1. How is the date acquired defined? What about a vehicle ordered in 2024 but delivered in 2025?
2. The distinction between a personal-use vehicle and a camper is not always clear. Some vans or pickups can function as either.
3. Don’t assume that the vehicle has final assembly in the US. For example, the Chevy Silverado pickup truck is assembled at four plants – one of which is in Mexico. So you can’t assume that a Chevy Silverado will qualify. The law says to go by what the window sticker says for the final assembly location for that specific vehicle.
4. Another temporary tax break will be debated in the future.

Commentary: There was some discussion that the $750,000 debt limit was too low. When the original limit of $1 million of mortgage debt was enacted, it was remarkable to see a $1 million principal residence mortgage. Now it’s commonplace. But the $750,000 limit remains

Commentary: The effect of this change is that those with losses of 111% of their winnings will not pay more tax. But those with equal losses and winnings will end up reporting 10% of their winnings as taxable income.

 

Commentary: Note the complex effective date. 

Commentary: Taxpayers need to navigate the effective date carefully.

Commentary:  No contribution can happen until 12 months after the date of enactment. Some financial advisors say there are better options than this fund that limits distributions by nature and age, does not allow deductions for contributions, but taxes distributions. 

Again, this represents a summary of the key personal provisions in the 2025 Tax Act, as they would affect most of our personal clients. This is not a comprehensive analysis of every provision, tax or non-tax. Please consider reading our summary of the article on key business tax provisions, as some provisions in that coverage may also be of interest. Also, there may be cases where a provision is both personal and business in nature, and the new rule that you are looking for is in the other article.

Please do not hesitate to contact us if you have any questions.