If you’re hearing a lot about the “OBBBA” this tax season, that’s because it’s a big tax law change that many people are still trying to understand. But let’s cut through the noise and look at what’s really law, what matters now, and what employers and the IRS are actually doing.
What OBBBA Is
The One Big Beautiful Bill Act was signed into law on July 4, 2025 as Public Law 119-21. It’s a broad law with tax changes for individuals and businesses that take effect in 2025 and later years — including changes that affect this filing season.
Some things in it are extensions of existing tax breaks from the Tax Cuts and Jobs Act, and some are new provisions, like special deductions for overtime and tips.
How This Affects This Filing Season (2025 returns filed in 2026)
1) IRS Is Filing Based on Enacted Law
The IRS isn’t guessing or applying political messaging. It is processing returns using the rules that are actually law right now and has held back on placeholder changes. That means:
- Withholding tables and information returns for 2025 mostly stayed the same.
- IRS has been issuing transition relief and guidance so employers and taxpayers can comply correctly without penalties.
That’s normal — the IRS only changes systems after final regs or clear guidance, which often trail the law’s signing.
2) New Personal Tax Deductions You Should Know
The law does add some new temporary tax benefits for 2025–2028 that could show up on 2025 returns:
• “No Tax on Overtime”
- Individuals may deduct the overtime premium portion of pay (like the extra half-time above regular pay).
• “No Tax on Tips”
- Workers who earn qualified tips may deduct up to certain limits — but employers still withhold Social Security, Medicare, and income tax.
These won’t change how payroll withholding works, but employees claim them on their 2025 tax return.
3) Reporting and Employer Actions
Employers are in a holding pattern this season:
- Most are continuing existing withholding practices instead of changing mid-year.
- New reporting requirements (like showing tip or overtime amounts separately on W-2s) are being phased in or clarified.
- IRS provided penalty relief and transition relief for necessary reporting changes in 2025 so employers aren’t hit with fines while systems get updated.
That’s how the IRS typically eases big changes — let people comply first, penalize later only if rules were clear and final.
Why There’s Still Confusion
Because OBBBA is so broad, news and social chatter mix:
- Temporary provisions (like new deductions) with
- Permanent changes (like extended tax brackets or SALT cap changes), and
- **Rules that haven’t taken effect yet (many start in 2026).
But for this filing season:
- The IRS processes based on law that’s actually in effect.
- New deductions are available — but only when claimed on returns.
- Employers are waiting for final guidance before rewriting payroll software or withholding tables.
What You Can Do Right Now
- File based on the actual enacted law — not headlines or rumors.
- If employees earned overtime or tips in 2025, check whether they’re eligible to claim the new deductions when you prepare returns.
- Watch for IRS instructions and updated forms (they’re rolling out through early 2026).
- Treat 2025 as a year of transition, not of sweeping mid-year changes.