Learn

Personal Resource Center
Back

What the 'One Big Beautiful Bill Act' Means for Your Taxes

When the Tax Cuts and Jobs Act (TCJA) passed in 2017, it was the most sweeping change to the U.S. tax code in decades.1 It lowered tax rates, nearly doubled the standard deduction, and altered rules around estate taxes. However, many of those changes were set to expire after 2025, and the scheduled sunsetting created uncertainty for individuals trying to plan for the future.

Now, a new piece of legislation, the One Big Beautiful Bill Act, makes several of those provisions permanent and introduces new tax breaks. Here’s what you need to know.


Some TCJA Changes Are Now Permanent

Under the One Big Beautiful Bill (OBBB) Act, several of the TCJA’s expiring provisions would be locked in beyond 2025. These include:

  • Lower tax rates across all income brackets, keeping the top marginal rate at 37%, and widening tax brackets to lower the average tax rates for all income groups.2
  • Increased standard deduction, making it easier for most taxpayers to file without itemizing.

  • Eliminated the personal exemption, a dollar amount you could take off your total income for yourself, your spouse, and dependents.3

  • Expanded child tax credit (CTC). OBBB permanently increases the CTC to $2,200 and indexed it for inflation starting in 2026.4 It also keeps the $500 credit for other dependents.

  • Reduced alternative minimum tax (AMT) exposure. OBBB permanently increases higher AMT exemptions to prevent middle-income taxpayers from having to pay taxes under the AMT system.5

  • Higher estate tax exemption. This allows more family wealth to pass on to heirs tax-free.

  • Cap on home mortgage interest deductions. The ability to deduct interest paid on your primary home mortgage (if you itemize) is limited to the interest on the first $750,000 of mortgage debt.6

  • State and local tax (SALT) cap. SALT deductions refer to deductions you can take on federal taxes if you are itemizing. They include state and local taxes, such as income taxes and property taxes. OBBB kept a cap on SALT deductions but increased the cap to $40,000 through 2029.4 Starting in 2030, the cap returns to $10,000. OBBB also implemented an income limitation for the SALT deduction, so your cap may be lower if your modified adjusted gross income (MAGI) is over $500,000.

  • Passthrough business income deduction. OBBB permanently extended the Section 199A deduction and established a minimum deduction of $400.7 This deduction allows owners of pass-through businesses — including sole proprietorships, partnerships, LLCs, and S Corporations — to deduct up to 20% of business income from their individual federal income tax return.8

New Provisions Aimed at Working Families and Seniors

1. Deductions for 'Qualified Tips' and 'Qualified Overtime'

The bill creates a new deduction of up to $25,000 for qualified tips.7 Qualified tips include tips paid by cash, card, or through tip-sharing arrangements to a worker in an occupation where tips are "customarily and regularly given," such as the food service and beauty industries.9 It doesn't include automatic gratuities, such as those for a large party. In September of 2025, the IRS released proposed regulations listing nearly 70 eligible jobs.10

It also creates a deduction of up to $12,500 for qualified overtime.4

Both deductions phase out for taxpayers with MAGI more than $150,000 ($300,000 for joint filers) and are available for tax years 2025 through 2028.11

document icon
The "One Big Beautiful Bill Act" extended some tax breaks and introduced a slate of new tax benefits that could impact you.

Both deductions phase out for taxpayers with MAGI more than $150,000 ($300,000 for joint filers) and are only available through 2028.

2. Savings Accounts for Children

The bill also introduces new starter savings accounts for children under the age 18. These accounts, known as “Trump Accounts” in the bill, would work similarly to IRAs. Contributions to the accounts won’t be tax-deductible, but the money grows tax-free. and will be available to the beneficiary once they reach age 18.

Parents, grandparents and other family members can contribute up to $5,000 per year, and employers can contribute up to $2,500 per year.4 Both amounts will be indexed for inflation annually.

The federal government will seed these accounts with $1,000 in the form of a tax credit paid directly to the child’s account. Only children born after December 31, 2024, and before January 1, 2029, qualify for the initial funding. But any child under the age of 18 and born before 2025 can have people contribute to such an account for them; they just don't get any seed money.

Withdrawals from Trump Accounts are limited based on the beneficiary's age.12 Here's a breakdown of how the rules apply:

  • Before age 18. Distributions aren't allowed, except for rollovers to another Trump Account or in the event of death.
  • Ages 18 to 30. Earnings, employer contributions, and government contributions distributed from the account (but not the original after-tax contributions) are taxable as ordinary income. Withdrawals are allowed but may be taxable and subject to an early withdrawal penalty for "qualified expenses" like higher education, buying a first home, birth or adoption expenses, or starting a business.
  • Age 31 and older. The account functions like a traditional IRA. Withdrawals can be made for any reason, but they're taxable as income. A 10% early-withdrawal penalty applies before age 59.5. The list of penalty exceptions is the same as that of an IRA.13
After age 59.5. Withdrawals are taxed as ordinary income, but the 10% early withdrawal penalty no longer applies.

3. Expanded Uses for 529 Plans

Opening a 529 college savings plan already offers tax benefits, but the bill expands 529 plan uses to cover additional educational expenses beyond tuition, room and board, required textbooks, computers and related equipment and services. These accounts can now be used for tutoring, test prep and potentially even homeschooling costs.4

These plans can also now cover “recognized postsecondary credential programs.” This expands the use of 529 plan funds to include workforce training and certification programs offered by institutions that aren’t eligible to participate in the federal student loan program.14

Effective January 1, 2026, the bill also increases the annual limit for K-12 expenses from $10,000 to $20,000.15

4. New Deduction for Auto Loan Interest

OBBB includes a new itemized deduction for interest on auto loans, up to $10,000.4 This will be an above-the-line deduction, meaning it's available to non-itemizers.

To qualify, the car must be new and assembled in the U.S.. ATVs, campers and trailers won't be eligible.

The value of this deduction will phase out for taxpayers with MAGI over $100,000 ($200,000 for joint filers). It's only available from 2025 through 2028.

5. New Deduction for Seniors Older Than 65

Older taxpayers already receive a slightly higher standard deduction, but this bill creates an additional $6,000 deduction for people older than 65.6 This deduction is available even if you itemize your taxes. However, it phases out for taxpayers with MAGI over $75,000 ($150,000 for joint filers) and is only available from 2025 to 2028.

6. Charitable Deductions

Since the TCJA increased the standard deduction, fewer people itemize, meaning fewer are able to deduct charitable giving.

OBBB creates a charitable deduction for people who don't itemize their taxes. The deduction is capped at $1,000 ($2,000 for joint filers).4 However, it does not take effect until the 2026 tax year.

Another change to charitable deductions is a new “floor” for deducting charitable contributions. Taxpayers who itemized deductions can only deduct donations that exceed 0.5% of their adjusted gross income.5 This floor doesn't apply to non-itemizers.

7. Elimination of Clean Energy Incentives

OBBB terminates several clean energy incentives created under the 2022 Inflation Reduction Act.16 This includes credits for new and used electric vehicles, installing home electric vehicle charging equipment, and energy-efficient heating and cooling systems.

The timeline for phase-out varies by credit:17

  • Clean vehicle, used clean vehicle, and commercial clean vehicle tax credits. End for vehicles placed in service after September 30, 2025.
  • Residential clean energy credit and energy-efficient home improvement credits. End for purchases after December 31, 2025.
  • Alternative fuel vehicle refueling property credit, new energy efficient home credit, and energy efficient commercial buildings deduction. End for property installed after June 30, 2026.

8. Limitation on Itemized Deductions for the Highest-Income Taxpayers

OBBB limits the ability for taxpayers in the top income tax bracket to claim itemized deductions. It limits the value of their itemized deductions to 35 cents on the dollar.6

For the 2025 tax year, this applies to people with taxable income greater than $626,350 (751,600 if married filing jointly).18


What This Means for You

If you’ve been bracing for your tax bill to increase in 2026, this legislation could be a welcome relief. It locks in many popular provisions of the TCJA, adds several new tax breaks and seeks to reward working, saving and giving in more targeted ways.

However, tax policy is never one-size-fits-all. The bill’s impact will vary depending on your income level, filing status and financial priorities.

If you're unsure how these changes will affect you, talk to your financial advisor or tax professional. The right guidance can help you take advantage of new opportunities.

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Government Accountability Office, “Tax Cuts and Jobs Act,” published February 25, 2020. Accessed July 21, 2025. Back
  2. Tax Foundation, “Tax Cuts and Jobs Act (TCJA),” accessed July 21, 2025. Back
  3. Tax Policy Center, “What are personal exemptions?” updated January 2024. Accessed July 21, 2025. Back
  4. Congress.gov, “H.R. 1 – One Big Beautiful Bill Act,” updated July 1, 2025. Accessed July 21, 2025. Back
  5. Christie R. Galinski and Jeffrey L. Golds, “One Big Beautiful Bill Locks in Tax Cuts, Tweaks SALT and Adds New Deductions,” National Law Review, updated July 8, 2025. Accessed November 15, 2025. Back
  6. Garrett Watson, Huaqun Li, Erica York, Alex Muresianu, Alan Cole, Peter Van Ness and Alex Durante, “’One Big Beautiful Bill Act’ Tax Policies: Details and Analysis,” Tax Foundation, published July 4, 2025. Accessed July 21, 2025. Back
  7. JD Supra, “Business Tax Updates in the One Big Beautiful Bill,” published July 7, 2025. Accessed December 2, 2025. Back
  8. IRS.gov, "Qualified business income deduction," updated July 9, 2025. Accessed October 6, 2025. Back
  9. Eric Revell, "IRS releases guidance for Trump's 'no tax on tips' and overtime deductions: What to know," published November 28, 2025. Accessed December 2, 2025. Back
  10. Federal Register, "Occupations That Customarily and Regularly Received Tips; Definition of Qualified Tips," published September 22, 2025. Accessed December 2, 2025. Back
  11. IRS.gov, "One, Big, Beautiful Bill Act: Tax deductions for working Americans and seniors," published July 14, 2025. Accessed December 2, 2025. Back
  12. Matt Eddleman and Matt Costa, "Overview of Trump Accounts," Frost Law, published August 18, 2025. Accessed November 15, 2025. Back
  13. IRS.gov, "Retirement topics - Exceptions to tax on early distributions," updated August 26, 2025. Accessed November 15, 2025. Back
  14. Medora Lee, “’One Big Beautiful Bill’ expands 529 plans. But are there better options?” USA Today, published July 8, 2025. Accessed July 21, 2025. Back
  15. Jamie Roessner, "529 plan expansion boosts education and CPA access," AICPA & CIMA, published November 4, 2025. Accessed November 15, 2025. Back
  16. Kaia Hubbard and Caitlin Yilek, “Here’s what’s in Trump’s ‘big, beautiful bill’ passed by Congress,” CBS News, updated July 4, 2025. Accessed July 21, 2025. Back
  17. IRS.gov, "FAQs for modification of sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, AND 179D under Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill (OBBB)," Published August 21, 2025. Accessed November 15, 2025. Back
  18. IRS.gov, "IRS releases tax inflation adjustments for tax year 2025," updated May 29, 2025. Accessed July 21, 2025. Back