You are not imagining it. The rules for your 2025 tax return changed in a real way, and this filing season is the first time those changes show up where they matter most – on the numbers you report to the IRS. If you earned tips, picked up overtime, own a home with a steep property tax bill, or run a Michigan business, the One Big Beautiful Bill Michigan story may affect what you can deduct and how much tax you owe.
Some of the headline changes really can help. Others look better in a news clip than they do on an actual return. And if you own a business, the biggest trap is assuming Michigan follows the federal rules. In several important places, it does not. Tax laws change frequently – verify current figures at IRS.gov or michigan.gov/treasury before filing.
The One Big Beautiful Bill Act, often shortened to OBBBA, was signed on July 4, 2025. In broad terms, it extended much of the Tax Cuts and Jobs Act framework and layered in several new deductions that start affecting 2025 returns filed during the 2026 season. That is why so many people are searching now. This is the first filing cycle where the law moves from headlines to forms, worksheets, and deduction choices.
For Michigan taxpayers, the most useful question is simple: what changes your own return right now? For wage earners, that often means the new deductions for tips, qualifying overtime, and seniors. For homeowners, the bigger SALT cap may finally make itemizing worth another look. SALT is short for state and local taxes, usually your Michigan income tax plus property taxes. For business owners, the law creates a more serious planning issue because the federal and Michigan rules do not line up on major write-offs.
The new deduction for tips is one of the most talked-about parts of the law, but it is easy to misunderstand. The change does not make tip income disappear. You still have to report qualifying tips, and FICA – the Social Security and Medicare tax withheld from wages – still applies. What the law can do is let you deduct up to $25,000 of qualifying reported tips for federal income tax purposes, subject to income limits and occupation rules.
The law uses a modified adjusted gross income, or MAGI, phaseout. MAGI is your adjusted income with certain items added back in. For this deduction, the phaseout starts above $150,000 for single filers and $300,000 for joint filers. Just as important, not every job that gets occasional gratuities will qualify. The IRS issued Notice 2025-69 to explain which occupations are treated as customarily receiving tips.
Here is the worked example from the brief. Say you are a Michigan restaurant worker with $60,000 of total income for 2025, including $8,000 in properly reported tips. If you are in a qualifying tipped occupation and below the income threshold, that $8,000 may be deductible on your federal return. You would still report the income and still pay payroll taxes on it, but the deduction can reduce your federal taxable income. That is a real benefit – and a strong reason to keep clean tip records before you file.
The overtime deduction is separate from the tips deduction, and it is narrower than many people expect. The maximum deduction is $12,500 for single filers and $25,000 for married couples filing jointly, but it applies only to workers covered by the Fair Labor Standards Act, or FLSA. That means not every extra-hour payment qualifies. The law focuses on the premium portion of overtime pay, not the whole amount.
A quick example shows why that matters. If your regular rate is $20 an hour and your overtime rate is $30 an hour, the extra premium is $10 an hour. If you worked 100 overtime hours, your total overtime pay would be $3,000, but the deductible portion would be $1,000 – the premium half only. Many taxpayers will look at a paystub, see a large overtime total, and assume the whole figure is deductible. Usually, it is not.
This deduction is also income-limited and scheduled to expire after 2028 under the current rules. If your payroll records do not clearly separate regular wages from overtime premiums, fix that before you file. It is much easier to sort out now than in response to an IRS notice later.
The senior deduction is easier to understand, which makes it especially useful for retirees and older workers. The law created a $6,000 above-the-line deduction for qualifying taxpayers age 65 and older, subject to MAGI limits of under $75,000 for single filers and under $150,000 for married couples. Above the line means the deduction reduces your income before you decide whether to take the standard deduction or itemize.
That point matters because this is not an either-or choice. A qualifying senior may be able to claim the new deduction and still take the standard deduction. For a Michigan couple living on Social Security, retirement distributions, and some part-time work, that can lower the income that flows into the rest of the return before other deductions are even considered.
If you are close to the income limit, do not guess. A year-end IRA distribution, a stock sale, or side income can push MAGI higher than you expected. When eligibility is tight, a quick review before filing can prevent a deduction error that turns into a notice later.
For Michigan homeowners who itemize, the larger SALT cap may be the most valuable part of the law. SALT includes your state and local taxes. In practical terms, that usually means Michigan income tax and local property tax. Under the current rules, the cap increased to $40,000 for 2025 through 2029, then is scheduled to drop back to $10,000 in 2030.
That is a major shift if you own a home in Oakland County or another area with meaningful property taxes. Imagine a married couple with a $14,000 property tax bill and $12,750 in Michigan income tax from a strong earnings year at the 4.25% state rate. Under the old $10,000 cap, a large share of that deduction was lost. Under the $40,000 cap, the full $26,750 may count if the couple itemizes and has enough total deductions to beat the standard deduction.
The bigger cap helps only if you itemize. It does not create a benefit by itself. That is why this rule and the standard deduction question always go together.
You have probably seen the 2026 standard deduction amounts quoted in articles and social posts: $32,200 for married filing jointly and $16,100 for single filers. Those are real numbers, but they apply to 2026 returns filed later. Your 2025 return uses the 2025 standard deduction amounts shown in the actual IRS forms and instructions for that year.
That distinction sounds small, but it changes planning. Plenty of people read a 2026 headline and assume it affects the return they are filing now. It does not. For your 2025 return, the question is still whether your itemized deductions – including SALT, mortgage interest, charitable gifts, and certain medical expenses – beat the 2025 standard deduction for your filing status.
For many Michigan filers, the answer will still be no. But if your property taxes are high and the new SALT cap pulls more of those taxes into the calculation, you should run the numbers again instead of defaulting to last year’s choice.
This is the section Michigan business owners cannot afford to skim. Michigan does not fully conform to the federal OBBBA business write-off rules. Under Public Act 24 of 2025, Michigan decouples from several major federal provisions. That means a deduction that works one way on your federal return may work very differently on your Michigan return.
The clearest example is bonus depreciation, which is an accelerated write-off for qualifying business assets. Federal law restored 100% bonus depreciation. Michigan does not follow that result. Michigan bonus depreciation is 40% for 2025, 20% for 2026, and 0% for 2027 and later. Michigan also caps Section 179 – the rule that lets many businesses expense equipment right away – at the 2024 level, adjusted for inflation, instead of following the larger federal expansion. Michigan also does not allow immediate federal-style research and development expensing.
Picture a Michigan company that buys $100,000 of equipment in 2025. Federally, the business may be able to expense the full amount if the asset qualifies. On the Michigan return, it may be limited to a much smaller first-year write-off. That creates a state-federal divergence that affects estimated taxes, return prep, and recordkeeping. If you own a business, you may need one depreciation schedule for federal purposes and another for Michigan. Levy Tax Help handles civil tax matters only and does not represent clients in criminal tax proceedings.
So what should you do before you file? Start with the records, then separate the federal rules from the Michigan rules, and get help before a simple mistake becomes an expensive one.
1. First, gather the documents that actually prove the deductions. That includes W-2s, payroll summaries, tip logs, property tax statements, mortgage interest statements, and year-end business asset records. These new rules are helpful, but they reward clean documentation.
2. Second, do not assume a federal benefit carries over to Michigan. That is especially important for business write-offs. If you own a company, compare what you are claiming federally with what Michigan allows through its own rules and Treasury guidance.
3. Third, get a second look before you file if the numbers are close, the records are messy, or you already expect an audit or notice issue. A short review now is usually cheaper than cleaning up a mismatch after the return is filed.
Helpful resources: Levy Tax Help’s Michigan tax page, tax audits and appeals guidance, contact Levy Tax Help, IRS.gov, and Michigan Department of Treasury.
No. You still need to report qualifying tips, and payroll taxes such as Social Security and Medicare still apply. The new rule creates a federal income tax deduction for qualifying reported tips; it does not erase the income itself.
Yes, potentially. The overtime break is an above-the-line deduction, which means it can reduce your income before you choose the standard deduction or itemize. You still need qualifying FLSA overtime and the correct premium-half calculation.
No. The SALT cap matters only if you itemize deductions. If the standard deduction still produces the better result for your filing status, the larger cap does not help on its own.
Not fully. Michigan decoupled from key federal provisions, including 100% bonus depreciation and immediate federal-style R&D expensing, and it limits Section 179 differently. Business owners often need separate federal and Michigan calculations.
No. Your 2025 return uses the 2025 deduction amounts listed in the IRS forms and instructions for that tax year. The 2026 standard deduction figures apply to later returns.
If you’re dealing with how the One Big Beautiful Bill Michigan changes affect your 2025 return, the team at Levy Tax Help is ready to help. Our attorneys, CPAs, and former IRS revenue officers have handled cases exactly like yours – many of us worked on the IRS side of these negotiations. Call (877) 500-4930 or contact us online for a free consultation.
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