The One Big Beautiful Bill Act: What It Actually Means for Your Taxes in 2026
If you’ve heard the phrase “One Big Beautiful Bill Act” and wondered what it means for your tax return, you’re not alone.
It’s the biggest piece of federal tax legislation since the 2017 Tax Cuts and Jobs Act. It affects W-2 employees, tipped workers, retirees, families, and small business owners across Central Pennsylvania.
The good news is that most of it isn’t as complicated as the headlines make it sound.
Below, we’ll explain what changed, who it affects, and how Pennsylvania’s tax rules fit into the picture. That last part is important because federal and Pennsylvania tax rules don’t always match.
What Is the One Big Beautiful Bill Act?
President Trump signed the One Big Beautiful Bill Act (OBBBA), officially Public Law 119-21, into law on July 4, 2025.
One of its main goals was to make many provisions from the 2017 Tax Cuts and Jobs Act permanent. Those provisions had been scheduled to expire at the end of 2025.
The law also created several new temporary tax breaks.
Some provisions applied retroactively to 2025. However, many of the changes discussed below apply to tax years beginning after December 31, 2025.
In plain English, these rules affect the 2026 tax year. That’s the return you’ll file in early 2027.
That makes the second half of 2026 a good time to plan around the changes instead of waiting until tax season.
What Changed for Individuals and Families?
Several parts of the new tax law affect individual taxpayers and families.
Tax Rates and Brackets Are Permanent
The seven TCJA-era federal income tax rates are now permanent.
Those rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
The 10% and 12% brackets also received an extra inflation adjustment starting in 2026. That gives some lower-income taxpayers more room before reaching the next tax bracket.
The Higher Standard Deduction Stays
The larger standard deduction created under the TCJA is now permanent.
It will continue to increase with inflation each year.
For 2026, the standard deduction for a single filer is roughly $16,100. Married couples filing jointly receive close to twice that amount.
The IRS publishes the final figures each year.
The SALT Deduction Cap Increased
The state and local tax deduction, commonly called the SALT deduction, increased from $10,000 to $40,000.
This change can benefit taxpayers who itemize and pay significant state, local, or property taxes.
That may be especially relevant for homeowners in areas such as Cumberland County.
The higher cap applies from 2025 through 2029. It begins to phase down for taxpayers with income between $500,000 and $600,000.
The cap is scheduled to return to $10,000 in 2030.
“No Tax on Tips” Has Limits
The new “no tax on tips” provision is real, but it does not apply to every worker or every dollar of tip income.
Eligible workers can deduct up to $25,000 in qualified cash tips each year through 2028.
The deduction only applies to occupations that regularly received tips as of the end of 2024. The IRS has published a list of qualifying occupations.
The deduction also begins to phase out above $150,000 of income for single filers and $300,000 for married couples filing jointly.
Starting with 2026 wages, employers will separately report qualified tips on Form W-2.
“No Tax on Overtime” Does Not Cover All Overtime Pay
The overtime deduction also has limits.
Employees can deduct up to $12,500 of qualified overtime pay. The limit is $25,000 for married couples filing jointly.
However, the deduction only applies to the premium portion of overtime pay.
For example, with time-and-a-half pay, only the additional “half” may qualify. Your regular hourly wages do not.
The deduction also only applies to overtime required by the federal Fair Labor Standards Act.
Overtime paid only because of a company policy or union agreement may not qualify.
The same income phase-outs used for the tip deduction also apply here.
Taxpayers Age 65 and Older Get Another Deduction
Taxpayers age 65 and older may qualify for an additional $6,000 deduction through 2028.
This is available in addition to the standard deduction.
The benefit begins to phase out at higher income levels.
The Estate and Gift Tax Exclusion Increased
The federal estate and gift tax exclusion increased to $15 million per person for 2026.
It will also be permanently adjusted for inflation in future years.
This change can be important for business owners and families working on estate or succession planning.
Some Car Loan Interest Is Now Deductible
Taxpayers who finance certain new, U.S.-assembled vehicles may deduct up to $10,000 per year in qualifying car loan interest through 2028.
You do not need to itemize deductions to claim it.
The benefit begins to phase out between $100,000 and $150,000 of income for single filers. For married couples filing jointly, the range is $200,000 to $250,000.
The vehicle’s VIN must also be reported on the tax return.
What Changed for Small Business Owners?
The One Big Beautiful Bill Act also makes several important changes for business owners.
The 20% QBI Deduction Is Permanent
The Qualified Business Income deduction, or QBI deduction, is now permanent.
Earlier versions of the legislation discussed increasing the deduction from 20% to 23%. That increase did not make it into the final law.
The deduction remains 20%.
What did change is the range where wage and property limitations begin to phase in. For 2026, those ranges widened to $75,000 for single filers and $150,000 for married couples filing jointly.
There is also a new minimum deduction of $400 for qualifying taxpayers.
To qualify for that minimum, you generally need at least $1,000 of qualified business income and must materially participate in the business.
100% Bonus Depreciation Returned
Federal 100% bonus depreciation is back for qualifying assets placed in service after January 19, 2025.
That allows many businesses to fully expense eligible purchases in the first year.
Unlike previous bonus depreciation rules, the new federal provision does not have a scheduled phase-down.
Pennsylvania, however, treats this differently. We’ll explain that below.
Section 179 Expensing Increased
Section 179 also became more generous.
For 2026, the deduction limit increased to $2.56 million.
The phase-out begins once total qualifying equipment purchases reach $4.09 million.
Domestic R&D Expenses Can Be Deducted Immediately
Businesses can once again immediately deduct qualifying domestic research and development expenses.
Under previous rules, many businesses had to spread those deductions over five years.
The new law allows qualifying domestic expenses to be deducted in the year they are incurred.
The 1099 Reporting Threshold Increased
The federal reporting threshold for Form 1099-NEC and Form 1099-MISC increased from $600 to $2,000.
The new threshold applies to payments made during 2026, with forms generally issued in early 2027.
If you pay a contractor or vendor less than $2,000 during the year, you generally will not need to issue a 1099 under the new federal threshold.
You should still collect a completed Form W-9 before paying contractors.
At the beginning of the year, you may not know whether that contractor will eventually cross the $2,000 threshold.
How Pennsylvania Treats the New Federal Tax Rules
This is where things can get confusing for Pennsylvania taxpayers.
Pennsylvania does not automatically follow every federal tax change.
Pennsylvania generally uses what is known as “rolling conformity.” That means state rules often change along with federal tax law.
However, Pennsylvania has chosen not to follow several provisions of the One Big Beautiful Bill Act.
Pennsylvania Does Not Allow Federal 100% Bonus Depreciation
Pennsylvania does not allow businesses to use the federal 100% bonus depreciation deduction in the same way.
That means a business may fully expense an asset on its federal return but receive different treatment on its Pennsylvania return.
The additional federal deduction generally must be added back for Pennsylvania purposes.
The asset is then depreciated under Pennsylvania’s applicable recovery rules.
As a result, an equipment purchase may produce a large federal deduction now while generating Pennsylvania deductions over several years.
Pennsylvania Does Not Have the QBI Deduction
Pennsylvania does not recognize the federal Section 199A Qualified Business Income deduction.
That is not a new change.
A business owner’s federal taxable income may fall because of the QBI deduction while Pennsylvania business income stays the same.
That difference is normal under Pennsylvania tax rules.
Other Business Provisions May Also Differ
Pennsylvania also differs from federal rules in areas involving certain R&D expenses and business interest deductions for Corporate Net Income Tax purposes.
The key takeaway is simple.
A federal tax deduction does not always create a Pennsylvania tax deduction.
If you’re considering an equipment purchase, compensation change, or new business structure, look at both sides before making the decision.
Federal tax savings are only one piece of the calculation.
What Should You Do Before the End of 2026?
August is a good time to review how these changes may affect your tax situation.
A few items deserve attention before year-end:
- Review planned equipment purchases. If you’re considering bonus depreciation or Section 179, account for Pennsylvania’s different treatment before deciding when to buy.
- Check your payroll system. Businesses with tipped or overtime-eligible employees should make sure qualified tips and overtime are being tracked correctly for 2026 W-2 reporting.
- Review your business structure. The QBI deduction becoming permanent removes some of the uncertainty that previously surrounded long-term entity planning.
- Review estimated taxes. Third-quarter estimated tax payments are due September 15. That makes late summer a natural time to review your expected 2026 tax liability.
There is still time to make adjustments before the end of the year.
Waiting until your 2026 return is being prepared in early 2027 may limit your options.
Frequently Asked Questions
When does the One Big Beautiful Bill Act take effect?
It depends on the provision.
Some changes, including certain tip and overtime deductions, applied beginning with 2025 income.
Many of the individual and business provisions discussed here affect the 2026 tax year. That means they will appear on returns filed in early 2027.
Do I need to send a 1099 to a contractor I paid less than $2,000 in 2026?
Generally, not under the new federal reporting threshold if total qualifying payments remain below $2,000.
You should still collect a completed Form W-9 from contractors before paying them.
That keeps the necessary information on file if their total payments later cross the reporting threshold.
Is the “no tax on tips” deduction automatic?
No.
It is a deduction claimed on your federal tax return.
Your occupation must also qualify under the rules covering jobs that regularly received tips as of the end of 2024.
Starting with 2026 wages, qualified tips will be reported separately on Form W-2. That should make the deduction easier to calculate.
Does Pennsylvania follow the new 100% bonus depreciation rules?
No.
Pennsylvania does not follow the restored federal 100% bonus depreciation rules in the same way.
Businesses may need to add back the additional federal deduction for Pennsylvania purposes.
The asset is then depreciated according to Pennsylvania’s applicable rules instead of being fully deducted at once.
How does the QBI deduction change affect my small business?
The QBI deduction remains 20%.
The proposed increase to 23% did not become part of the final law.
The biggest change is that the 20% deduction is now permanent.
The phase-in ranges for certain limitations also widened, and a new $400 minimum deduction may apply to taxpayers with at least $1,000 of qualified business income who materially participate in the business.
Why These Tax Changes Matter in Pennsylvania
A tax law this large will not affect every taxpayer the same way.
Some federal changes may lower your tax bill. Others may have little effect.
Pennsylvania’s different rules can also create a gap between your federal and state taxable income.
Bonus depreciation is a good example. A business may receive a large federal deduction in one year while Pennsylvania spreads the tax benefit across several years.
Those differences are much easier to manage when you plan for them in advance.
Cohick & Associates has spent more than 40 years helping business owners and families across Carlisle, Mechanicsburg, and the surrounding area understand changes like these.
If you want to know how the One Big Beautiful Bill Act could affect your 2026 federal and Pennsylvania taxes, schedule a call with our team.
We’ll walk through the numbers with you in plain English.
