OBBBA Tax Impact (Part 2): Key Updates for Taxpayers
- Del Sol CPA
- Mar 8
- 6 min read
Tax Rule Changes Affecting Workers and Employees
The following tax changes introduced by the OBBBA mainly apply to employed or self-employed individuals.
Overtime Pay Deduction (a.k.a. “No Tax On Overtime”)
Effective 2025-2028
One of the most widely publicized elements of the OBBBA, this provision allows certain workers to claim deductions on a fixed amount of overtime pay (as defined in the Fair Labor Standards Act). This deduction will be available to both itemized and non-itemized tax filings, and is effective temporarily, from 2025 to 2028.
Deductions are capped as follows:
$12,500 (Single)
$25,000 (MFJ)
This deduction phases out above certain MAGI thresholds:
$150,000 (Single)
$300,000 (MFJ)
Eligibility Requirements and Caveats:
The deduction is not available for people filing as Married Filing Separately (MFS)
The taxpayer receiving overtime must have a Social Security number
Overtime wages must be recorded on the taxpayer’s W-2 form by their employer
In 2025, a special exception allows employers to approximate overtime amounts.
Employees must not be exempt from FLSA overtime rules.
Only the 50% additional overtime pay above standard pay rates is eligible for deduction
Tips Received Deduction (a.k.a. “No Tax on Tips”)OBBBA tax impact
Effective 2025-2028
Another heavily publicized rule introduced by the OBBBA, this provision creates a new temporary deduction for tips received by the taxpayer, from 2025 to 2028. This deduction is capped at $25,000.
This deduction phases out above certain MAGI thresholds:
$150,000 (Single)
$300,000 (MFJ)
Eligibility Requirements and Caveats:
The deduction is not available for people filing as Married Filing Separately (MFS)
The taxpayer must have a valid Social Security number and employer designation on a W-2 form.
Adjustments to 1099 Forms
Effective from 2025
The OBBBA reduced the filing requirements for various 1099 forms which are used to report specific types of income. Affected forms include:
Form 1099-MISC - used to report miscellaneous income
Form 1099-NEC - used to report non-employee compensation, and
Form 1099-K - used to report card payment and third-party platform transactions.
Perhaps most significant is the changes to the 1099-K form – specifically for individuals receiving payments from third-party platforms. After 2025, such platforms will only be required to send a Form 1099-K if total payments exceed $20,000 (increased from $600, AND you received over 200 transactions in a given year.
Note that as an individual taxpayer, you will still be required to report such income even if you do not receive a form. If you need further information or assistance with determining which forms to complete, consider taking a look at our US Tax Forms helper guide, or reaching out to us for a consultation.
Tax Rule Changes Affecting Families
As mentioned above, a number of changes were made to tax rules that impact families, including the CTC. Other changes include:
Adoption Credit Is Now Refundable
Effective from 2025
Previously, the adoption tax credit could be claimed to reduce tax liability to zero. Under the OBBBA tax plan, some of this credit (up to $5,000) is now refundable. The total credit is unchanged ($17,280 as of 2025)
Introduction of “Trump Accounts”
Effective from 2026-2028
The OBBBA introduced a new type of savings account for children, otherwise known as “Trump Accounts”, or Child Savings, or Child IRA accounts. These accounts allow parents to contribute up to a combined $5,000 annually for a child to use once they turn 18.
The accounts will include a $1,000 deposit made by the federal government for certain children (U.S. Citizens) born between the years of 2025-2028
Employers may also contribute up to $2,500
0tax-free to employee accountsThe $5,000 yearly threshold will be adjusted for inflation starting in 2027.
Accounts will be automatically created by the federal government if not done so by the child’s parents
Notably, contributions in the account are not tax deductible until the child turns 18. These accounts are tax-deferred – any earnings on investments are not taxable until withdrawn. Furthermore, the accounts are treated similarly to IRA (individual retirements accounts), meaning that any withdrawals before age 59 ½ are subject to regular income tax and a 10% penalty (with exceptions, such as college tuition or a first-time home purchase)
The rules for these new “Trump Accounts” are quite complex, and may further complicate existing family or wealth planning strategies. We strongly advise consulting a tax professional to fully understand the rules and implications surrounding the funds placed in this type of savings account.
Expansion of the Child and Dependent Care Credit
Effective from 2026
The maximum percentage that can be claimed for this credit has been increased to 50%
The MAGI threshold for phasing down the claimable percentage has been raised significantly, beginning at $15,000 up to $105,000 ($210,000 for MFJ) at which point the allowed percentage is reduced to 20%.
Tax changes affecting vehicle and homeowners
Loans originating after December 31, 2024 for personal-use vehicles assembled in the United States are eligible for a $10,000 annual qualified interest deduction
This is effective from 2025 to 2028
Available to both itemized and standard tax filers.
Electric Vehicle Credits expired on September 30, 2025. New or used EVs purchased on October 1, 2025 or later are no longer eligible for these credits
Residential energy credits repealed – energy-efficient home improvements will no longer be tax deductible
From 2026, the Mortgage interest deduction has been made permanent.
Mortgage interest premiums may be treated as mortgage interest
The State and Local Tax deduction (SALT) changes mentioned earlier in this article may have a major (positive) impact on tax paying homeowners, significantly reducing their federal tax burden, if eligible.
Tax Changes Affecting Overseas Taxpayers
Although the OBBBA’s changes are far-reaching, with a broad impact across all levels of taxpayers, only one rule change specifically stands out as warranting special attention from taxpayers living overseas.
A new 1% Tax on foreign transfers was introduced, effective from 2026; any money transfers to foreign locations (e.g. money orders, cashier’s checks) will be subject to a 1% excise tax.
Note: The OBBBA did make many permanent changes to international tax policy which are primarily relevant to multinational corporations and beyond the scope of this article.
Other Miscellaneous and General Tax Rule Changes
Charitable Deduction Changes
Effective from 2026
Two major, permanent changes were introduced by the OBBBA with regards to charitable deductions.
For itemized deductions, there is a floor (reduction) of 0.5% of your income (or contribution base) before any charitable giving deductions can be claimed. This reduces the total value of each itemized charitable deduction.
For itemized and non-itemized deductions, a new Charitable Deduction for cash contributions can be made, up to $1,000 (single) or $2,000 (filing jointly).
Education-related Tax Benefit Changes
The OBBBA also introduced a series of changes to the benefits available to students and educators, including:
From 2026 forward, the American Opportunity Credit, Lifetime Learning Credit, and student loan debt cancellation will require a valid Social Security number
From 2026 forward, employers will permanently be able to help pay student loans, up to $5,250 per year (adjusted for inflation annually) towards payment of principal and interest on qualifying loans
The Educator Expense Deduction has been expanded to allow more types of educators and items to claim up to $300 in un-reimbursed education-related expenses.
From 2027 forward, contributions to scholarship funds can be claimed as a tax credit (up to $1,700)
Gambling and Wagering Loss Deduction Changes
Effective from 2026
Under the OBBBA, only 90% of gambling losses (previously 100%) can be deducted, or used to offset winnings. These new changes effectively cause gamblers who break even to result in a net loss, resulting in an effective tax rate of over 100%.
In Conclusion
As you’ve likely gathered from the scope of this article, the tax changes passed into law by the OBBBA are far-reaching and will impact every kind of US taxpayer. By some estimates, these changes will increase the average after-tax income for US taxpayers by 2.9%, especially favoring those in middle- and high-income tax brackets.
Whether or not you directly benefit from the tax changes may be hard to determine simply due to the sheer number of changes introduced. We understand that navigating shifting tax policy can be stressful and overwhelming for those unfamiliar with tax regulations, especially if you’re an overseas expat.
As the premier provider of tax advice for expats in Taiwan, We at Del Sol CPA & Associates are here to help, whether you’re just trying to make sense of new tax changes, or you want to be sure that you’re maximizing your potential tax benefits. You’re not alone – let our expert advisors make things simple, and contact us for a free consultation today.
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