Taxes usually feel confusing on purpose. And when new laws pass, it just adds to the chaos.
Hi, I’m Joseph Stoy, financial adviser and senior accountant here at Base.
The “One Big Beautiful Bill” changed a few things that directly impact how much of your money you keep. I’m going to explain what changed, what the limits are, and what words like caps and phase-outs actually mean—without turning this into a tax class.
First, tax brackets didn’t change—and that’s the point. The tax brackets we’ve been using for the last few years are now permanent. That means the same percentage ranges apply. No surprise tax increases just because the law expires. More predictability when you’re planning income, raises, or bonuses.
So if you’ve heard people say “nothing changed with tax rates,” that’s actually good news.
Now the big one: tips and overtime.
This is the part everyone talks about, but most people misunderstand. Under the new law, tips and overtime pay are not subject to federal income tax up to a limit. That limit (or ceiling) is about $25,000 per year.
A ceiling just means that you get the benefit up to this amount, and then it stops.
So, if you earn $10,000 in tips, all of it qualifies. If you earn $20,000 in tips, all of it qualifies. If you earn $30,000 in tips, only the first $25,000 qualifies. The extra $5,000 is taxed normally.
Now, there’s a huge clarification: you still have to report all of your tips and overtime. Even the part that isn’t federally taxed must be reported on your tax return. It still counts as income and still has Social Security and Medicare taxes taken out.
So this is not a loophole or “cash under the table.” It’s about how income is taxed, not whether it’s reported.
Now, what about phase-outs?
This is where people get confused. A phase-out means you don’t lose a benefit all at once. It slowly disappears as you make more money.
For the tips and overtime benefit, once your income gets into higher ranges, the benefit starts to shrink. Eventually, higher earners lose it completely.
So someone making $40,000 or $60,000 likely gets the full benefit. Someone making $120,000 or $150,000 gets less. Very high earners may get none.
The idea is that this rule is meant to help lower- and middle-income workers, not high-income professionals.
Another change people miss: car loan interest.
If you have a car loan, the interest you pay may now be deductible in more situations. A deduction means this lowers the income you’re taxed on. So if you earn $50,000 and deduct $5,000, you’re taxed as if you earned $45,000.
This isn’t free money, but it reduces your tax bill—especially helpful if you rely on your car for work or commuting.
State and local taxes (SALT).
This one mostly affects people later in life, but it’s good to understand. The cap on state and local tax deductions went from $10,000 to $40,000 for certain income levels. That means people who pay high state income tax or property tax may now deduct more—until income phase-outs apply. Again, more income means less benefit.
Child tax credit for families.
The child tax credit is now $2,200 per child, and it’s permanent.
A credit is better than a deduction because it reduces your tax bill dollar-for-dollar. So $2,200 means $2,200 less tax owed—not just less taxable income.
The most important thing to understand—and this part applies to everyone—is that none of this is automatic. Your job won’t do this for you. The IRS won’t remind you. And tax software only works if the information is correct.
So words like caps, ceilings, phase-outs, deductions, and credits all mean very different things, and misunderstanding them can cost you thousands.
Two people can make the same money at the same job, and one can walk away with more just because they understood the rules.
So if you work for tips, pick up overtime, have a car loan, or are just starting to make real money, this law matters to you now—not later.
And the biggest mistake people your age make with taxes is thinking, “I don’t make enough for this to matter.” Well, that’s usually when it matters the most.
The goal of this law wasn’t to make taxes harder. It was to shift who benefits and how.
Once you understand things like caps, ceilings, and phase-outs, taxes stop being scary—and they start being manageable. And that understanding alone can save you money.
At the end of the day, this law isn’t about taxes. It’s about how much of your paycheck you actually keep.
But these benefits only work if you know how to use them. Caps, ceilings, and phase-outs can quietly change what you qualify for—and most people don’t realize it until tax time.
If you want help making sure you’re not leaving money on the table, book a meeting with us. We’ll walk you through your situation and make this stuff simple—because the rules changed, and the people who understand them win.
