OBBBA Tax Changes for NJ Residents: Everything That Changed on July 4, 2025

Updated for the One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) - This article is the definitive OBBBA guide for NJ residents. Key changes: SALT cap raised to $40,000 for 2025 ($40,400 for 2026, phase-down above $505K MAGI) • 100% bonus depreciation made permanent • QBI deduction made permanent • New deductions for tips, overtime, and seniors • Estate tax exemption set at $15M • NJ still does not conform on bonus depreciation, QBI, or HSA. Last reviewed: March 2026 by Greg Monaco, CPA

In This Article

1. What Is the One Big Beautiful Bill Act?
2. OBBBA at a Glance: NJ Impact Summary
3. 1. SALT Cap: $40,000 for 2025 ($40,400 for 2026)
4. 2. Bonus Depreciation: 100% Permanent
5. 3. QBI Deduction (§199A): Permanent
6. 4. Section 179: $2.56M Federal Cap, $25,000 NJ Cap
7. 5. No Tax on Tips (IRC §224)
8. 6. No Tax on Overtime (IRC §225)
9. 7. Senior Bonus Deduction: $6,000 for Ages 65+
10. 8. Vehicle Loan Interest Deduction: Up to $10,000
11. 9. Child Tax Credit: $2,200, Permanent
12. 10. Estate Tax: $15 Million Exemption, Permanent
13. 11. Section 174 R&E Expenses: Immediate Expensing Restored
14. 12. Miscellaneous Itemized Deductions: Permanently Eliminated
15. 13. Standard Deduction: Permanently Increased

Disclaimer: This article is educational and does not constitute tax advice or create a CPA-client relationship. Tax law changes frequently. Consult a licensed CPA before filing. Circular 230 applies.

What Is the One Big Beautiful Bill Act?

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025 (P.L. 119-21), is the most significant federal tax legislation since the Tax Cuts and Jobs Act of 2017. It permanently extended most TCJA provisions scheduled to expire at the end of 2025, added several new deductions, and made structural changes to the tax code.

For New Jersey residents, the analysis is complicated by NJ's selective conformity to federal law. When Congress changes a federal provision, NJ independently decides whether to adopt, reject, or modify it. As of March 2026, NJ has not enacted conforming legislation for most OBBBA provisions. This means your NJ return may look very different from your federal return - sometimes in your favor, sometimes not. Our tax preparation services account for every federal-NJ disconnect covered below.

OBBBA at a Glance: NJ Impact Summary

1. SALT Cap: $40,000 for 2025 ($40,400 for 2026)

The original TCJA capped the state and local tax (SALT) deduction at $10,000. The OBBBA raised this cap to $40,000 for 2025 and $40,400 for 2026, with 1% annual indexing through 2029.

The phase-down rule: For 2026, taxpayers with modified AGI above $505,000 ($252,500 MFS) lose 30 cents of SALT cap for every dollar above the threshold. The cap floors at $10,000 ($5,000 MFS). At approximately $606,333 MAGI, the elevated OBBBA benefit is reduced to that floor.

The NJ BAIT bypass: The NJ Business Alternative Income Tax election lets pass-through entities pay NJ income tax at the entity level, converting it from a personal Schedule A deduction (subject to the SALT cap) into a business expense deduction (not subject to any cap). Even with the SALT cap at $40,400 for 2026, BAIT remains essential for NJ business owners whose total SALT exceeds $40,400 - which includes most owners with significant NJ pass-through income. Read the full BAIT vs. SALT Cap analysis.

Greg Monaco, CPA: The SALT cap increase genuinely helps W-2 earners who own homes in Essex County. If you are paying $20,000 in property taxes and $15,000 in NJ income tax, you now get to deduct $35,000 instead of $10,000. But for S-Corp owners, the BAIT election still saves far more than the cap increase alone - it is not an either/or.

2. Bonus Depreciation: 100% Permanent

The OBBBA (P.L. 119-21, §70301) makes 100% bonus depreciation under IRC §168(k) permanent for qualified property PLACED IN SERVICE after January 19, 2025. Property acquired under a binding contract dated before January 20, 2025 but placed in service in 2025 remains subject to the original TCJA phasedown (20% in 2025 for that subset). This reverses the scheduled wind-down (80% in 2023, 60% in 2024, 40% in 2025 originally, 20% in 2026) for new placements - meaning companies that delayed equipment purchases to wait out the phase-down can now invest with certainty under the permanent post-OBBBA rules.

Qualifying property: MACRS property with a recovery period of 20 years or less, computer software, qualified improvement property (QIP), and certain film/television productions. Most equipment, machinery, vehicles under the weight threshold, and building interior improvements qualify.

The NJ add-back: New Jersey has never conformed to federal bonus depreciation. NJ requires a full add-back of bonus depreciation claimed under §168(k), then depreciates the property over its normal NJ MACRS life. This creates a permanent book difference between your federal and NJ returns that must be tracked annually.

For real estate investors, cost segregation studies now create immediate federal deductions on reclassified 5/7/15-year components while NJ requires straight-line MACRS. A $1M commercial property with a cost seg study might generate $150,000 in federal first-year deductions and only $15,000 in NJ deductions. See the full NJ cost segregation analysis.

3. QBI Deduction (§199A): Permanent

The 20% qualified business income (QBI) deduction is now permanent. Key OBBBA modifications:

• $400 minimum deduction for taxpayers with at least $1,000 of active QBI
• Expanded phase-in range for the W-2 wage limitation, allowing more taxpayers above the income threshold to claim a partial deduction
• 2026 threshold: SSTB phase-out begins at $201,750 (single/HoH) / $403,500 (MFJ), with the expanded OBBBA phase-out range ending at $276,750 / $553,500

NJ does not conform. New Jersey has not adopted §199A. A sole proprietor with $200,000 in qualified business income who saves $8,800 in federal taxes from the QBI deduction saves nothing in NJ - and pays full NJ GIT on the entire $200,000. This is one of the most consequential NJ non-conformity issues for self-employed residents.

4. Section 179: $2.56M Federal Cap, $25,000 NJ Cap

Section 179 allows immediate expensing of qualifying business property. For 2026, the federal cap is approximately $2,560,000 (inflation-adjusted), with a phase-out beginning at $4,090,000.

New Jersey's cap: $25,000 (N.J.S.A. 54A:5-1.2). This is one of the most dramatic federal-state divergences in the code. A landscaping company investing $300,000 in equipment deducts $300,000 federally but only $25,000 in NJ. The remaining $275,000 is recovered through NJ MACRS depreciation over the asset's useful life. Plan capital expenditures with your NJ depreciation schedule in mind, not just the federal deduction.

5. No Tax on Tips (IRC §224)

The OBBBA created a new below-the-line deduction for tip income under new IRC Section 224, claimed on Schedule 1-A Part II and flowing to Form 1040 line 13b (after AGI). The deduction reduces taxable income but does NOT reduce AGI - so it does NOT improve EITC, CTC, IRA deductibility, or other AGI/MAGI-gated benefits. Per the final regulations (Treasury Decision 10044, April 13, 2026):

• Maximum deduction: $25,000 per year
• Tax years: 2025-2028 (four-year window; sunsets December 31, 2028)
• MAGI phase-out: Begins at $150,000 single/HoH/MFS, $300,000 MFJ; reduced $100 per $1,000 of MAGI above threshold; fully phased out at roughly $400,000 single / $550,000 MFJ
• Qualifying tips: Voluntary tips from customers in occupations on the IRS Treasury Tipped Occupation Code (TTOC) list at Treas. Reg. §1.224-1(h) / IRS.gov/TippedOccupations (food and beverage, hospitality, personal care, beauty services, casino, taxi/rideshare, etc.). Mandatory service charges and automatic gratuities do NOT qualify (voluntariness requirement).
• Eligibility mechanics: Valid SSN by original return due date (no ITINs); MFJ required if married; SSTB exclusion under §199A(d)(2); tip pools to managers/owners do not qualify; 5%+ owner triggers irrebuttable recharacterization
• Employer reporting (W-2 path): Tips reported through the employer's tip reporting system on W-2 Box 7 flow to Schedule 1-A line 4a. Self-employed workers in qualifying occupations report on Schedule 1-A line 5 via Form 1099-NEC Box 1, 1099-MISC Box 3, or 1099-K Box 1a.

Dollar example: A NJ server earning $45,000 in wages and $22,000 in reported tips, single filer. The full $22,000 is deductible (under the $25,000 cap). With 2026 single brackets per Rev. Proc. 2025-32 (10% on first $12,400, 12% on $12,401-$50,400), the federal savings on the $22,000 deduction is approximately $2,640 - all of the tip income falls in the 10%/12% brackets, not the 22% bracket.

NJ conformity: The NJ Division of Taxation issued official guidance on December 1, 2025 confirming the OBBBA tip, overtime, and senior deductions do NOT affect the NJ Individual Income Tax return. NJ still taxes all tip income as ordinary income at NJ GIT rates. The federal deduction does not reduce NJ taxable income. NJ servers and hospitality workers must report and pay NJ income tax on all tip income, including amounts deducted on the federal return. Full analysis in the No Tax on Tips NJ guide.

6. No Tax on Overtime (IRC §225)

The OBBBA created a new below-the-line deduction for qualifying overtime pay (same Schedule 1-A line 13b mechanics as the tip deduction):

• Maximum deduction: $12,500 (single), $25,000 (MFJ)
• Tax years: 2025-2028
• MAGI phase-out: Begins at $150,000 single / $300,000 MFJ; same $100-per-$1,000 reduction as the tip deduction
• FLSA-only: Only overtime pay earned under the Fair Labor Standards Act qualifies. Independent contractor overtime, exempt salaried employee overtime, and voluntary arrangements outside FLSA do not qualify.
• W-2 reporting: Per IRS guidance (IR-2026-10), qualifying FLSA overtime premium is reported in W-2 Box 12 with code TT (qualified tips use code TP) and flows to Schedule 1-A. Maintain payroll records showing FLSA overtime amounts as backup.

NJ conformity: Confirmed non-conformity. The NJ Division of Taxation's December 1, 2025 OBBBA guidance covers overtime as well as tips - NJ has not adopted IRC §225 and overtime remains fully taxable on the NJ-1040. A NJ manufacturing worker with $18,000 in FLSA overtime saves up to ~$2,200 federally (most of $18,000 in the 12% bracket, not 22%) but pays full NJ income tax on the same amount.

7. Senior Bonus Deduction: $6,000 for Ages 65+

The OBBBA created a new $6,000 below-the-line federal deduction (Schedule 1-A, like the tip and overtime deductions - it reduces taxable income, not AGI) for taxpayers age 65 or older:

• Amount: $6,000 (single or one qualifying spouse), $12,000 (MFJ, both spouses age 65+)
• Tax years: 2025-2028
• Phase-out: Begins at $75,000 MAGI (single), $150,000 MAGI (MFJ); the 6% reduction applies once per return, so the deduction is eliminated at $175,000 single, $250,000 MFJ with one qualifying spouse ($6,000), or $350,000 MFJ with both spouses 65+ ($12,000)
• Age qualification: Must turn 65 at any point during the tax year

NJ interaction: The federal senior deduction reduces only federal taxable income. However, NJ has its own retirement benefit: the NJ Retirement Income Exclusion excludes up to $100,000 of pension, annuity, IRA, and 401(k) income for NJ residents meeting the age and income thresholds. The two operate in parallel - claim the federal deduction on Schedule 1-A, and the NJ exclusion on the NJ-1040.

8. Vehicle Loan Interest Deduction: Up to $10,000

For the first time since 1986, personal vehicle loan interest is deductible under OBBBA:

• Maximum: $10,000 per year in interest paid
• Qualifying vehicle: New vehicle with final assembly in the United States
• Tax years: 2025-2028
• Phase-out: $100,000 AGI (single), $200,000 AGI (MFJ)
• Not available: Used vehicles, leased vehicles

NJ conformity for this provision is uncertain. Keep your vehicle loan statements and manufacturer assembly records. At 22% federal rate, $10,000 in deductible interest saves $2,200 in federal tax.

9. Child Tax Credit: $2,200, Permanent

The OBBBA permanently increases the Child Tax Credit to $2,200 per qualifying child (inflation-indexed from 2027). Phase-out thresholds remain at $200,000 (single) / $400,000 (MFJ).

NJ's separate credit: NJ maintains its own Child Tax Credit of $1,000 per child under age 5 for NJ filers with income under $80,000. Claim the federal CTC on Form 1040 and the NJ credit on the NJ-1040 - they operate independently.

10. Estate Tax: $15 Million Exemption, Permanent

The OBBBA permanently raises the federal estate tax exemption to $15 million per person ($30 million per couple with portability), inflation-indexed from 2027. Before OBBBA, this exemption was scheduled to revert to approximately $7 million at the end of 2025.

NJ context: New Jersey repealed its estate tax in 2018. NJ residents who die after December 31, 2017 owe no NJ estate tax regardless of asset level. However, NJ's inheritance tax remains in effect. NJ taxes transfers to Class C beneficiaries (siblings, step-siblings, sons-in-law, daughters-in-law) at 11-16% and Class D beneficiaries (all others) at 15-16%. Class A beneficiaries (surviving spouse, children, grandchildren, parents) pay no NJ inheritance tax. For NJ residents with significant assets, inheritance tax planning is still relevant even though the federal and NJ estate taxes are no longer issues.

11. Section 174 R&E Expenses: Immediate Expensing Restored

The TCJA required that domestic R&D expenditures be amortized over 5 years starting in 2022, reversing decades of immediate expensing. The OBBBA restores immediate expensing for domestic R&E costs in the year paid or incurred (foreign R&E is still amortized over 15 years).

NJ decouples. New Jersey has historically applied its own R&E rules independent of federal treatment. Consult a CPA for the NJ treatment of your specific R&E costs.

12. Miscellaneous Itemized Deductions: Permanently Eliminated

The TCJA temporarily suspended the 2%-floor miscellaneous itemized deductions (unreimbursed employee business expenses, tax prep fees, investment advisory fees). The OBBBA permanently eliminates these deductions - they will not return.

Business deductions unaffected: Schedule C, S-Corp, and partnership deductions for the same expenses are still valid. Self-employed individuals can still deduct CPA fees, professional development, and business-use expenses as business expenses.

NJ exception: NJ never fully adopted the TCJA suspension of miscellaneous itemized deductions. NJ taxpayers may still be able to claim certain unreimbursed employee business expenses on the NJ-1040 under NJ's separate rules. This is a meaningful NJ-specific benefit that most DIY software does not flag.

13. Standard Deduction: Permanently Increased

The OBBBA permanently increased the standard deduction to a base of $15,000 (single) and $30,000 (married filing jointly), inflation-indexed. For 2025, the indexed amounts are $15,750/$31,500. For 2026, they are $16,100/$32,200. Without OBBBA, these amounts would have reverted to approximately $8,300/$16,600 after 2025.

NJ has no standard deduction. NJ does not allow a standard deduction on the NJ-1040. Every NJ filer must use NJ itemized deductions, regardless of the federal election. NJ itemized deductions include property taxes, mortgage interest (up to $25,000 for certain filers), and other NJ-specific items. The federal standard deduction increase has no effect on NJ liability.

14. Dependent Care FSA: $7,500 Starting 2026

The annual limit for employer Dependent Care FSAs increases to $7,500 starting January 1, 2026 (up from $5,000). This is a meaningful benefit for NJ working parents. At 22% federal + 6.37% NJ effective rate, the additional $2,500 in pre-tax FSA contributions saves approximately $710 in combined taxes. Update your open enrollment election before the deadline.

15. Trump Accounts (Section 530A): Child Savings Accounts

The OBBBA created a new type of account - 'Trump Accounts' (IRC §530A, added by OBBBA §70204; signed July 4, 2025). The 'MAGA Account / Money Account for Growth and Advancement' label appeared in earlier House-side reconciliation drafts but did NOT make it into the enacted statute - IRC §530A is captioned 'Trump accounts' and IRS Form 4547 is titled 'Trump Account Election(s).' Use 'Trump Account' as the official term:

• Eligible: Any child under 18 with a valid SSN; the $1,000 federal seed is limited to children born January 1, 2025 through December 31, 2028
• Federal seed funding: $1,000 one-time federal contribution at opening (separate from the $5,000 annual cap per §530A(b)(2))
• Private contributions: Up to $5,000/year combined from family and employer sources
• Investments: Equity ETFs tracking broad U.S. markets
• Tax treatment: After-tax contributions; earnings grow tax-deferred; distributions are taxed as ordinary income under traditional-IRA rules after the account converts at age 18 (contributions retain basis)
• Available: Starting July 4, 2026 (one year after OBBBA signing)

Treasury guidance on custodians, investment options, and NJ treatment is pending. If you have an eligible child, note the July 4, 2026 availability date and watch for implementation guidance.

What the OBBBA Did NOT Change

Several key provisions remain unchanged and should not be confused with OBBBA changes:

• Federal corporate rate: Remains at 21%
• Long-term capital gains rates: 0%, 15%, 20% brackets - unchanged
• Net Investment Income Tax: 3.8% surtax on net investment income - unchanged
• Additional Medicare Tax: 0.9% above $200K/$250K - unchanged
• Social Security taxation: Unchanged federally; NJ still exempts Social Security from NJ GIT at all income levels
• Roth IRA rules: Contribution limits and income phase-outs adjusted only for normal inflation

NJ Conformity Summary (March 2026)

Frequently Asked Questions

Ready to File With Confidence?

Tax rules change frequently. If anything in this guide applies to your situation, a quick review with a CPA can prevent costly mistakes. Greg Monaco is a NJ-licensed CPA (License #20CC04711400) who prepares every return personally.

Schedule a free 30-minute consultation