On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, a sweeping piece of legislation that extends and expands many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) while introducing some notable new changes as well.
While the bill touches on business incentives, energy policy, and more, our focus here is on the elements that directly impact households like yours—income tax rates, deductions and credits, exclusions from taxable income, and new opportunities for saving and investing. We’ll break it down section by section, highlighting how these changes could influence your financial plan. Many provisions apply to tax years beginning in 2025, with some temporary through 2028 or 2029 and others made permanent, so we’ll make note of when these changes take effect. As always, individual circumstances vary, so if you’re a client, please let us know if you want to discuss more of any of these in detail. Also, many of these changes are tax-specific, so we also suggest consulting with your tax-preparer.
Income Tax Rate Changes: Locking in Lower Brackets
The OBBBA permanently extends the TCJA’s individual income tax rates, effective for tax years beginning after December 31, 2025 (i.e., starting in 2026), preventing a scheduled reversion to higher pre-2018 levels. The brackets remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37%, with inflation adjustments applied to all but the top bracket.
For example, a married couple filing jointly with $300,000 in taxable income would fall primarily in the 22% and 24% brackets, compared to the old 28% and 33% rates. This permanence provides a certain level of long-term planning certainty, allowing families to better forecast after-tax income for retirement contributions or debt payoff. High earners should note the 37% top rate applies to income over approximately $600,000 for joint filers, adjusted annually.
Enhanced Standard Deduction and Itemized Changes
The OBBBA permanently extends the increased standard deduction from the TCJA, effective for tax years beginning after December 31, 2025 (starting in 2026), with temporary boosts for 2025 through 2028. For 2026, projections set it at $16,300 for singles, $24,500 for heads of household, and $32,600 for joint filers—up from pre-TCJA levels of about half that. An additional $1,000 to $2,000 enhancement applies during the temporary period from 2025 to 2028, potentially pushing joint filer deductions to $31,500 or more in 2025.
This makes itemizing less necessary for many, as over 90% of filers now take the standard deduction. However, for those who do itemize, key changes include:
- A permanent limit on home mortgage interest to debt up to $750,000, effective 2026 onward.
- Casualty losses restricted to federally declared disasters, effective 2026.
- Miscellaneous itemized deductions, like unreimbursed employee expenses, are permanently eliminated starting in 2026.
A notable update is the State and Local Tax (SALT) deduction cap. Previously limited to $10,000, it’s raised to $40,000 ($20,000 for married filing separately) for tax years 2025 through 2029, with a phase-down starting at $500,000 in adjusted gross income (AGI) for joint filers—reducing by 30% for every dollar over the threshold until hitting $10,000. This offers relief for households in high-tax states like California or New York, where property and income taxes can exceed the old cap, potentially saving upper-middle-income families thousands in federal taxes. The cap reverts to $10,000 in 2030 without phase-outs.
While high-tax states might be the most impacted, these changes might cause some high-income households (who earn less than $500,000) in other states to switch from taking the standard deduction to itemizing if the previous cap lowered their ability to itemize in the past, because they’ll now be able to deduct more of their state income tax.
New Exclusions and Deductions for Everyday Earnings
The act introduces several “no tax on” provisions to shield common income sources from taxation, with most effective for tax years 2025 through 2028.
- No Tax on Tips: Service workers can deduct up to $25,000 in qualified tips annually (reported on W-2 or 1099), available to both itemizers and non-itemizers. It phases out for AGI over $150,000 ($300,000 joint).
- No Tax on Overtime: Deduct up to $12,500 ($25,000 joint) in overtime pay exceeding regular rates, with similar phase-outs. Ideal for hourly workers in manufacturing or healthcare. A special rule allows employers to approximate overtime in 2025.
- Car Loan Interest Deduction: For loans on U.S.-assembled vehicles (cars, SUVs, etc., under 14,000 lbs.) originated after 2024, deduct up to $10,000 in interest annually, phasing out over $100,000 AGI ($200,000 joint). This non-itemizer deduction lowers the cost of auto financing.
- Seniors aged 65+ get an extra $6,000 deduction ($12,000 if both spouses qualify), effective 2025 through 2028, on top of the standard senior bump, phasing out over $75,000 AGI ($150,000 joint).
- For self-employed or pass-through business owners, the qualified business income (QBI) deduction is made permanent.
Boosted Benefits for Families
Family-focused credits see meaningful upgrades:
- The Child Tax Credit (CTC) is permanently increased to $2,200 per child (under 17), effective for tax years beginning in 2025, with phase-outs starting at higher AGI levels ($400,000 joint) and inflation indexing. This partially refundable credit can reduce tax bills or provide refunds.
- The Earned Income Tax Credit (EITC) gets administrative tweaks to curb fraud, effective 2025.
- Dependent care flexible spending account contribution limits rise to $7,500, effective 2025, allowing pre-tax savings for childcare or eldercare.
New Savings Opportunity: The Trump Savings Account
One interesting addition is the Trump Savings Account, a tax-advantaged vehicle for children’s future needs, effective for children born between January 1, 2025, and December 31, 2028. It starts with a $1,000 government seed deposit (no income limits, requiring a child’s SSN and parental election). Parents, grandparents, or employers can contribute up to $5,000 annually (after-tax, not deductible), indexed for inflation after 2028. Employer contributions up to $2,500 are tax-free to the family.
Funds grow tax-deferred, invested in low-cost stock index funds like the S&P 500 for potential high returns over 18+ years. Withdrawals are locked until age 18, then usable for education, home buying, business startups, or hardships—earnings taxed at favorable capital gains rates (15-20%). For children born before 2025, similar accounts can be opened with contributions allowed until age 18, but without the government seed.
Pros of the Trump Savings Account
- Assists with retirement readiness: allows contributions at an even younger age prior to earned income, which amplifies the benefits of compounding over time
- Flexibility: For those under age 18, contributions can be made to the account even if there is no earned income, unliked Traditional or Roth IRAs.
- Broad Access: No income limits for the seed money ensure all families can benefit, and employer contributions enhance participation.
- Tax deferral: Growth is not taxed until it is withdrawn, unlike UTMA or UGMA accounts which tax investment income each year.
Cons of the Trump Savings Account
- After-Tax Contributions: No upfront tax deduction, which may deter some families compared to deductible accounts like IRAs. Cost basis (the amount that has been contributed) must be tracked alongside account growth over time.
- Market Risk: The money must be invested in stock index funds which could lose value, especially during market downturns, unlike guaranteed savings options. Bonds, cash and even international stocks are not allowed prior to age 18, so diversification is limited. An all-equity portfolio may be appropriate for most investors, but some families or individuals who aren’t used to investing may not be able to tolerate that level of risk.
- Locked Funds: Money is inaccessible until age 18, with penalties for non-qualified withdrawals, limiting short-term flexibility.
- Limited Eligibility for Seed: Only children born 2025-2028 qualify for the $1,000 seed, excluding older kids.
- Lack of Clarity: This will eventually change, but many questions are unanswered. Perhaps most importantly, can the money be rolled to a Roth IRA, similar to how $35,000 of 529 money can be rolled to a Roth IRA? How do parents elect to receive the $1,000 of seed money?
- Another account type: Was anyone asking for this? If Congress wanted to allow flexibility for minors to contribute to a retirement account without a job, IRA contribution rules could simply have been relaxed. Instead, we now have yet another account type with its own unique set of rules for the public (or their hired professionals) to try to understand, track, and maintain.
Estate and Other Planning Implications
The estate and gift tax exemption jumps permanently to $15 million per person ($30 million for couples), effective for estates in 2026 and beyond, indexed for inflation—shielding most families from federal estate taxes and easing generational transfers.
ABLE accounts for disabled individuals see extended enhancements, effective 2025, allowing higher contributions and Saver’s Credit eligibility.
On the flip side, excess business losses for non-corporate taxpayers (e.g., sole proprietors) are permanently capped at $313,000 ($626,000 joint), effective 2026, with carryovers.
Lastly, there were some expansions regarding the definition of K-12 qualified expenses for 529 accounts. It’s important to note, however, that Nebraska – where many of our clients reside – has still not adopted the federal definition of qualified expenses for 529 accounts, and they money must be used for college, not K-12 expenses. Unless you’re willing to pay some tax and penalty.
What This Means for Your Financial Plan
While this isn’t an exhaustive list of the items that impact our clients’ finances, it does cover many of the common item. For our clients, we see the following items to be the most impactful:
- Preventing the tax cuts from sunsetting (brackets remain low)
- Increasing the SALT cap limit
- Permanently raising the estate and gift tax exemption
- Senior tax deduction
At our firm, we’re already implementing these changes in client financial plans and tax projections, so when it comes time to review your financial plan with us, we’ll be ready.
