Dissecting the ‘One Big Beautiful Bill’

Earlier this month, on July 4th, President Trump signed into law the ‘One Big Beautiful Bill’.  The largest bill of its kind since the TCJA bill in 2017, this will have sweeping impacts on many government areas including immigration, federal budgetary restrictions, Medicaid, and personal income taxes.

This has been a hotly contested bill, and both sides of the aisle have argued strongly for and against some of these changes.  We aim to avoid any political bias but felt it was important to discuss the key impacts this bill will have, specifically on personal finances and taxes.

With many of the changes to this bill, the answer to how this could impact you is, as always….’it depends’.  

In no particular order:

1. Tax Brackets

Many of the components of this bill are making TCJA provisions permanent as they were set to ‘sunset’ at the end of this year.  One of them being the current tax rates.  

Current Income Tax Rates: 10%, 12%, 22%, 24%, 32%, 35%, 37%

If Sunset: 10%, 15%, 25%, 28%, 33%, 35%, 39.6%

2. Standard Deduction (Plus Bonus for Seniors)

The standard deduction was bumped up again, now to $15,750 for single filers and $31,500 for married couples.  This will be indexed to inflation beginning in 2026.  Seniors over 65 can still claim the extra standard deduction of $2,000 for single filers or $1,600 per qualified person if married filing jointly.

The OBBB has created a new ADDITIONAL standard deduction on top of the above.  This is commonly confused with early statements saying that Social Security would be tax free (spoiler alert, it is not).  The additional deduction will help lower-earning retirees offset their taxes.  The deduction is $6,000 per qualifying person, meaning a married couple can take an additional $12,000 deduction.  This comes to a total of $46,700 ($31,500+ $1,600 + $1,600 + $12,000) in standard deduction for those keeping track at home.  The caveat, the deduction does not apply to everyone and begins to phase out at an income of $75,000 for individuals and $150,000 for married couples.  The deduction is lowered by $60 for every $1,000 of income over that threshold (6%).  The new rules do open up some opportunities for additional planning around social security.

3. SALT Cap Increase

One of the more contested points of the bill, the SALT (State and Local Tax) cap has been (temporarily) increased to $40,000.  This new cap phases out at marginal adjusted gross income (MAGI) between $500,000-$600,000 for married couples and will be increased by 1% per year until 2030.

4. Estate Tax Exemption

A big part of the TCJA in 2017 was drastically raising the estate tax exemption.  The OBBB increases it slightly again to a nice round $15 million ($30 million for married couples). Keep in mind state estate taxes are still there and Vermont is one of those states that has a lower exemption.

5. Health and Children

Health Savings Accounts (HSA) have been expanded on the health plans they can be paired with.  Be sure to review your benefits package at the end of this year during open enrollment because you might be eligible now.

The Dependent Care Flexible Spending Account has been bumped up from $5,000/year to $7,500/year; more money for parents to cover childcare with tax free dollars.

Child tax credit bumped up to $2,200/child.  You may have heard there was an old version of the bill that said this would be $2,500 but this changed in the final version.

An odd additional account is the ‘Trump Account’ that will be an additional savings vehicle for families.  While there is still some uncertainty as to how this will actually operate, the idea is families will get $1,000 deposited in a tax deferred investment account that will grow until the child is 18 and they get access.  As of now, the only eligible children will be born between 12/31/2024 and 1/1/2029.  On top of the $1,000 from the federal government, families can contribute up to $5,000/year but would not be tax deductible.  Employers will be eligible to contribute $2,500 to employee’s children’s accounts without impacting income. An interesting new benefit that could be offered.

6. No Taxes on Tips and Overtime

Similar to the confusing language on Social Security taxes, Overtime and Tips will also be eligible for an additional ‘deduction’ of sorts.  The deduction for both will be calculated as an Above the Line deduction up to $25,000 per year and phased out at $150,000 ($300,000 for married couples with overtime pay).  Key point is that since this is above the line, it does not require itemizing, and you can still take the Standard Deduction.

7. Odds and Ends

Somewhat expected but most green incentives are going away.  The electric car credit ends on 9/30/25 and green home improvement credits will go away on 12/31/2025.  If you planned on upgrading either, now is the time and many companies are offering incentives.

You will be able to now take a $10,000 deduction for vehicles of final assembly in the United States.  Also, an above the line deduction and you will still get the standard deduction.

100% Bonus Depreciation is back.  Truly, this is only impactful for self-employed people and real estate investors but could have large impacts on personal tax returns.

Form 1099-K (which covers payments from apps like Venmo or CashApp) has reverted the threshold to $20,000 in payments or 200 transactions,  so don’t worry about grabbing the tab and getting those credit card points anymore!

There are certainly pros and cons to all these changes.  While we are not here to discuss the second order ramifications, we can say this does make the tax code more complicated for most filers. Please do not hesitate to reach out to discuss your financial plan further and know there are many components of this bill that are not included here but could have an impact.