The budget reconciliation bill, entitled the One Big Beautiful Bill Act (OBBBA), was signed into law by the president on July 4, implementing many significant tax and spending policy changes and extending several policies previously set to expire. The law’s provisions are wide sweeping, affecting individuals, businesses, and other organizations to varying degrees. This article highlights some of the key provisions of the legislation impacting union workers.
Please note that IRS guidance on the new legislation is still forthcoming. RBT CPAs will continue to provide updated information as this guidance is issued.
Permanent Extension of TCJA Tax Rates
The OBBBA makes permanent the tax rates and brackets established by the Tax Cuts and Jobs Act (TCJA) of 2017.
Standard Deduction
The OBBBA locks in the 2017 individual rate schedule and increases the standard deduction to $15,750 for single filers, $23,625 for heads of household, and $31,500 for joint filers, effective in 2025, with ordinary inflation indexing thereafter.
Child Tax Credit
The OBBBA permanently increases the Child Tax Credit (CTC) to $2,200 per qualifying child under the age of 17, effective for tax year 2025 and indexed annually for inflation. The maximum refundable portion has been raised to $1,700, also adjusted annually for inflation.
No Tax on Overtime
The OBBBA creates a temporary deduction of up to $12,500 ($25,000 for joint returns) for individuals who receive qualified overtime compensation (as defined by the Fair Labor Standards Act), available for tax years 2025 through 2028. The deduction applies only to overtime compensation and begins to phase out when the taxpayer’s modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 for joint filers).
It is important to note that the deduction applies only to federally required overtime under the FLSA (Section 7), not to enhanced state overtime rules or those negotiated under collective bargaining agreements. W-2s will need to separately report qualified overtime compensation.
Expansion of 529 Plans
The OBBBA expands permitted uses of funds in 529 education savings plans by broadening the definition of “qualified expenses.” Tax-exempt distributions from 529 savings plans now apply to additional expenses related to enrollment in private, public, or religious elementary or secondary schools including books, materials, testing fees, tutoring costs, dual enrollment fees, and educational therapies—in addition to tuition. The OBBBA also increases the annual limit for 529 account distributions for K-12 expenses from $10,000 to $20,000. Additionally, the OBBBA allows 529 plan funds to be used for “qualified postsecondary credentialing expenses,” including tuition, fees, books, supplies, testing, equipment, and continuing education required for participation in a recognized postsecondary credential program.
Additional Guidance
The budget reconciliation bill is an expansive piece of legislation containing many significant policy changes. RBT CPAs will continue to keep our clients apprised as additional information and guidance is released regarding the OBBBA. In the meantime, if you have questions regarding the recent tax law changes, please don’t hesitate to reach out to our experts at RBT CPAs. And as always—RBT CPAs is here to support all of your accounting, audit, tax, and advisory needs. Contact us today to find out how we can be Remarkably Better Together.