6 ‘Big Beautiful Bill’ Tax Changes That Benefit the Middle Class

The “One Big Beautiful Bill Act” (OBBBA) may live up to its name for many middle-class taxpayers. The tax package introduces new deductions and credits designed to help working households, families and small-business owners keep more of their income.

According to Mark Luscombe, JD, CPA and principal analyst at Wolters Kluwer’s Tax & Accounting division, here’s what middle-class taxpayers need to know.

The OBBBA contains several provisions intended to help middle-income households retain more of what they earn. From the expanded child tax credit to new deductions for overtime, tips and seniors, the biggest winners are taxpayers making less than about $400,000.

Luscombe noted that “the preservation of the standard deduction and the slight increase would benefit any middle-class taxpayers who do not itemize their deductions.”

The expanded child tax credit — now $2,200 — will help taxpayers with a modified adjusted gross income (MAGI) of $200,000 or less ($400,000 for joint filers). The reduced benefits will phase out at $243,001 ($443,001 for a joint return), effective this year already.

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Many of the provisions target people with hourly or service-based jobs, including groups that have often been overlooked by previous tax laws.

Luscombe explained that the new tip reduction will benefit workers who earn qualifying tips with a MAGI below $150,000 ($300,000 for joint filers), with a phase-out beginning in 2025. Likewise, the new overtime deduction will help those with qualified overtime earnings and MAGI below $150,000 ($000$0), MAGI below $150,000 ($000000) will begin. the same year.

The bill introduces senior-specific deductions and provides relief for homeowners in high-tax areas.

According to Luscombe, “The new $6,000 senior deduction would benefit seniors with a modified gross income of $75,000 ($150,000 for joint filers), with the deduction reduced during the phase-out for a modified adjusted gross income of $175,000 ($250,000 for joint filers effective through 2002).”

He added that increasing the state and local tax (SALT) deduction limit from $10,000 to $40,000 will help taxpayers who pay higher local taxes and itemize the deduction, as long as their MAGI is less than $500,000.

Middle-income families will also see expanded tax savings tied to education and dependent care.

Luscombe said taxpayers with dependent care expenses “could benefit from improvements to the Child and Dependent Care Credit, Employer Dependent Care Assistance and Employer Provided Child Care Credit, effective in 2026.”

The legislation expands qualifying expenses for 529 plans, introduces a $1,700 credit for scholarship-granting organizations and creates a new itemized deduction for qualified teacher expenses.

For middle-class business owners and self-employed taxpayers, over-extended provisions can significantly reduce taxable income.

Luscombe highlighted that the Section 179 spending limit was increased to $2.5 million and the 20% qualified business income deduction for pass-through entities was made permanent. “One hundred percent bonus depreciation is restored for assets placed in service after January 19, 2025,” he said, adding that small businesses can also “retroactively recoup research and experimental expenses to 2022.”

Not every provision lasts. Some clean-energy and vehicle cuts have already been phased out.

“The deduction for clean vehicles ends for vehicles placed in service after September 30, 2025,” Luscombe said. “The deduction for energy-efficient home improvements ends for home improvements placed in service after December 31, 2025.”

Most of these benefits are retroactive, taking effect in 2025. Taxpayers claiming the standard deduction may want to defer charitable contributions to 2026 to take advantage of the new charitable deduction for non-itemizers. Luscombe also advised working with a tax professional to “make the most of the changes that will come into effect by 2025.”

For middle-class households, the One Big Beautiful bill offers meaningful tax breaks for those who plan ahead and make the most of each deduction before it’s gone.

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This article originally appeared on GOBankingRates.com: I’m an Accountant: 6 ‘Big Beautiful Bill’ Tax Changes That Will Benefit the Middle Class