The One Big Beautiful Bill: What the new tax law really means for working Americans and business owners

Major tax legislation rarely lives up to its branding.

But the One Big Beautiful Bill, passed on July 4, 2025, introduces several changes that could meaningfully affect how Americans, particularly hourly workers, dual-income households, and small business owners, approach their tax planning over the next several years.

While headlines have focused on the bill’s size and scope, the real story lies in the details. From overtime income exclusions to expanded state and local tax deductions and renewed pass-through tax strategies, this legislation offers both opportunities and potential pitfalls depending on how well taxpayers understand and act on the changes.

Here’s what you need to know.

Why this bill matters

According to IRS data, more than 60% of U.S. taxpayers now take the standard deduction, while small business ownership continues to grow, with more than 33 million pass-through entities operating nationwide. At the same time, inflation and labor shortages have driven overtime hours higher across industries such as manufacturing, health care, logistics, and public safety.

The One Big Beautiful Bill attempts to address these realities by:

• Offering targeted relief to hourly and lower-income workers

• Temporarily expanding deductions for high-tax states

• Preserving planning advantages for closely held businesses

But these benefits are not automatic nor are they permanent.

No federal income tax on overtime premiums (2025-2028)

One of the most widely discussed provisions of the bill is the new federal income tax deduction for overtime pay, effective from 2025 through 2028. Here’s how it works:

• Only the overtime premium portion of pay qualifies, not the base hourly wage.

• Example:

• Regular pay: $10/hour; overtime pay: $15/hour; tax-free portion: $5/hour

• Workers may deduct up to:

• $12,500 per year (single filers), $25,000 per year (married filing jointly)

It’s important to note what this provision does not do:

• It does not eliminate Social Security or Medicare taxes.

• It does not exempt overtime from state income tax.

• It does not apply automatically —- you must qualify and claim it correctly.

Eligibility limits apply. The deduction phases out for higher-income earners:

• $150,000 for single or head-of-household filers

• $300,000 for married couples filing jointly

In addition, the benefit is limited to non-professional hourly workers or individuals earning less than $35,568 annually on a salaried basis.

For households where overtime is a significant portion of income, this provision could reduce federal tax liability by thousands of dollars annually, but only if filing status and income thresholds are carefully managed.

Expanded SALT deduction: Temporary relief for high-tax states

The bill also addresses a long-standing pain point for taxpayers in high-tax states: the State and Local Tax (SALT) deduction cap. From 2025 through 2029:

• The SALT cap increases to $40,000, with modest annual increases

• The cap reverts to $10,000 in 2030

Who benefits most?

• Taxpayers with income below:

• $500,000 (single or joint filers), $250,000 (married filing separately)

Above those thresholds, the deduction gradually phases down — but never below the original $10,000 floor.

This change may make itemizing deductions worthwhile again for many households, particularly homeowners with significant property taxes or state income tax exposure. However, because the provision is temporary, long-term tax planning should account for its scheduled sunset.

Pass-Through Entity Tax (PTET): A strategic advantage for business owners

For owners of partnerships and S corporations, the bill preserves one of the most effective planning tools developed in response to SALT limitations: the Pass-Through Entity Tax (PTET).

In states that allow PTET elections, businesses may choose to:

• Pay state income taxes at the entity level

• Deduct those taxes fully as a business expense

• Reduce the owner’s federal taxable income without triggering the SALT cap

Example:

If a business pays $49,500 in Illinois state tax, that amount directly reduces federal taxable income — often resulting in significant federal tax savings.

Owners may still deduct up to $10,000 of other SALT expenses on their personal returns, such as:

• Real estate taxes

• Personal property taxes

• State income tax on nonbusiness income

PTET elections must be made carefully and on time, and not all businesses benefit equally. But for qualifying owners, this remains one of the most powerful tools available under current law.

Planning is everything

The One Big Beautiful Bill offers meaningful opportunities, but only for those who plan proactively. Here are some key considerations to think about:

• Filing status decisions for married couples

• Income timing and overtime management

• Whether itemizing deductions now makes sense

• State-specific PTET rules and elections

• Preparing for future sunsets and phaseouts

Tax law is rarely simple, and broad legislation often creates winners and losers based on nuance rather than intent. Working with a trusted tax adviser can help ensure you’re not leaving money on the table — or creating surprises down the road.

Final thoughts

The One Big Beautiful Bill is less about sweeping reform and more about targeted relief with an expiration date. For workers relying on overtime, families navigating rising state taxes, and business owners managing complex structures, the next few years present a valuable — but limited — window for smart tax planning.

Understanding the rules is the first step. Acting on them strategically is where the real value lies.

• Susan Bannwart is a Certified Public Accountant and the founder of Highpoint Advisory Services, where she advises individuals and closely held businesses on tax planning, compliance, and financial strategy.