By Justin Quen, CPA, Tax Editor
The One Big Beautiful Bill Act (OBBBA) recently passed by Congress marks one of the most significant changes to the tax code since the 2017 Tax Cuts and Jobs Act. While the law applies across the United States, several provisions are likely to have an especially strong impact in Arizona. From working families and service industry employees to seniors and business owners, this new legislation could influence how Arizonans earn, save, and pay taxes.
More Take-Home Pay for Service and Hourly Workers
For many Arizonans working in restaurants, hotels, and the state’s thriving tourism sector, OBBBA brings welcome news. Two headline provisions focus on putting more money directly into workers’ pockets.
Under the new rules, up to $25,000 in annual tips can be excluded from taxable income, allowing servers, bartenders, and other tipped employees to keep a larger share of their hard-earned gratuities. In addition, up to $12,500 in overtime pay can also be removed from taxable income, giving hourly workers in fields like construction, healthcare, and manufacturing a meaningful boost.
In a state where service and hospitality jobs play such a central role in the economy, these changes could translate into thousands of dollars in tax savings each year for the people who help keep Arizona’s industries moving.
Tax Relief for Seniors
Arizona is home to one of the largest retiree populations in the country, and OBBBA delivers a meaningful benefit for residents age 65 and older. Beginning in 2025 and continuing through 2028, the standard deduction will increase by $6,000 per qualifying individual. A married couple in which both spouses are age 65 or older will enjoy a total additional deduction of $12,000. This higher deduction allows more retirement income to remain untaxed, giving seniors greater flexibility in their household budgets and helping them preserve more of their savings.
Higher SALT Deduction Cap
OBBBA significantly increases the cap on State and Local Tax (SALT) deductions, a change that will be especially noticeable for Arizona homeowners. Beginning in 2025, taxpayers can deduct up to $40,000 in combined state and local taxes, up from the previous $10,000 limit. This expanded deduction will remain in place with gradual adjustments until 2029, when the cap is set to return to its previous level.
While Arizona’s state income tax rates are relatively moderate compared to some other states, this higher cap can still deliver substantial savings to residents who pay sizable property taxes. Homeowners in areas like Scottsdale, Paradise Valley, and parts of Tucson, where property values and tax bills are higher, stand to benefit the most. For many, this change will reduce taxable income by thousands of dollars, making homeownership more affordable and freeing up resources for other financial priorities.
Child Tax Credit Increase
OBBBA permanently increases the Child Tax Credit, from $2,000 to $2,200 per qualifying child. This enhancement provides families with additional tax savings each year, helping offset the costs of raising children.
For Arizona families, this credit can be especially helpful in covering everyday expenses such as childcare, school supplies, and extracurricular activities. Whether in Phoenix, Tucson, or smaller communities, families will see a modest but lasting increase in their annual tax benefits.
Car Loan Interest Deduction
OBBBA introduces a new deduction for interest paid on qualifying car loans, available from 2025 through 2028. Taxpayers can deduct up to $10,000 per year in interest on eligible passenger vehicles, and you do not have to itemize deductions to claim it.
What qualifies for the deduction:
- New vehicles only: Applies only to new vehicles purchased after December 31, 2024. Used cars do not qualify.
- Personal use: The vehicle must be for personal use and cannot be claimed as a business asset.
- US-assembled: The vehicle must have its final assembly in the United States.
- Weight limit: The vehicle must weigh less than 14,000 pounds.
- Qualified loan: The loan must originate after December 31, 2024, be secured by a lien on the vehicle, and lease payments do not qualify.
This deduction could be especially beneficial in Arizona, where driving is essential and long commutes are common. Whether commuting into Phoenix or Tucson or covering long distances in rural areas, Arizonans purchasing a qualifying new vehicle could see meaningful tax savings.
Final Thoughts
OBBBA contains several provisions that will affect Arizonans in different ways, from putting more take-home pay in the hands of workers to easing the tax burden for seniors and homeowners. Families, commuters, and small business owners alike may find opportunities to benefit from these changes.
Disclosure: Many of these provisions include income-based phaseouts that can reduce or eliminate the benefit. Consult a qualified tax professional to determine how these changes apply to your specific situation.
