Ask the Editor, August 15: Tax Questions on the OBBB, Tax Rates
In our latest Ask the Editor round-up, Joy Taylor, The Kiplinger Tax Letter Editor, answers four questions on the OBBB and tax rates.
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Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on the OBBB and tax rates. (Get a free issue of The Kiplinger Tax Letter or subscribe.)
1. Income tax rates
Question: Did the “One Big Beautiful Bill” act (OBBB) extend the lower federal income tax rates for individuals that were going to expire after 2025?
Joy Taylor: Yes. Federal income tax rates for C corporations, individuals, trusts and estates will stay the same. C corporations are taxed at a 21% rate. The individual income tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%. The federal income tax rates for trusts and estates are 10%, 24%, 35% and 37%. These are all permanent.
2. Income tax withholding tables
Question: Will the IRS adjust the 2025 federal income tax withholding tables to reflect the changes in the OBBB?
Joy Taylor: No. The IRS announced that it will not update the 2025 federal income tax withholding tables to account for the new tax breaks in the OBBB, such as the higher standard deduction, the write-offs for tips and overtime pay, and the $6,000 senior deduction for filers 65 and older. Although these new tax breaks begin in 2025, filers won’t reap the benefits of them until next year when they file their 2025 tax returns.
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3. Estate tax
Question: Did the OBBB lower or eliminate the top 40% federal estate tax rate?
Joy Taylor: No. The top federal estate tax rate stays at 40%. But the higher lifetime estate and gift tax exemption is now permanent, and is even bigger, beginning in 2026. The federal lifetime exemption for 2025 deaths is $13,990,000. Starting with 2026 deaths, the exemption rises to $15 million (and is indexed for inflation for each year thereafter). So fewer estates will have to file a federal estate tax return.
4. Net investment income tax
Question: Did the OBBB repeal the 3.8% surtax on net investment income of individuals with higher incomes?
Joy Taylor: No. The 3.8% net investment income (NII) tax was not changed in the OBBB. The tax applies to single filers with modified adjusted gross incomes (AGI) over $200,000, joint filers with modified AGI over $250,000, and married people filing separately with modified AGI above $125,000. For this purpose, modified AGI is defined as AGI plus tax-free foreign-earned income. The NII tax, which is added to the regular income tax, is due on the lesser of NII or the excess of modified AGI over the $200,000/$250,000/$125,000 thresholds. Investment income of trusts and estates can also be hit with the 3.8% NII tax if their 2025 AGI exceeds $15,650 and they have undistributed net investment income.
NII includes what is commonly thought of as investment income: Dividends, capital gains, taxable interest, annuities, royalties and passive rental income. Trade or business income derived through a passive activity is also NII, provided that the business income isn’t otherwise subject to self-employment tax.
For more details on the 3.8% NII tax, see our article “More People Are Paying This Tax On Investment Income Each Year.”
About Ask the Editor, Tax Edition
Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.
We have already received many questions from readers on topics related to tax changes in the “One Big Beautiful Bill" act and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!
Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.
More Reader Questions Answered
- All Ask the Editor Q&As
- Ask the Editor: Questions on the New Tax Law
- Ask the Editor: Questions on the $6,000 Senior Deduction
- Ask the Editor: Questions on home sales and taxes
- Ask the Editor: Questions on Inherited IRAs
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