Tax Refund Check On top of Form 1040 and One Hundred Dollar Bill.
Updated July 3, 2025: This past has been adjusted to correct the House vote to 218-214.
The House has passed the Senate’s version of President Donald Trump’s One Big Beautiful Bill by a narrow margin (218-214), and it will now head to President Donald Trump’s desk for his signature. The bill includes significant tax cuts that dwarf the spending cuts to the tune of a $3.1 trillion increase in the deficit over the next 10 years, according to Forbes. This article highlights five key ways the One Big Beautiful Bill Act will transform individual taxation.
1. Individual Tax Rates Will Not Increase
A key provision of the Tax Cuts and Jobs Act of 2017 lowered the top individual income tax rate from 39.6% to 37%. Additionally, the act lowered the majority of tax rates across all income levels. For instance, the second tax bracket previously was taxed at 15% and it is now being taxed at 12%. The third tax bracket went from 25% to 22%. However, as the tax reform was passed during reconciliation, this change was temporary and set to expire after 2025. The One Big Beautiful Bill Act retains the new tax rates and makes them permanent, meaning Congress will not need to address this again in the next decade. Preserving these tax rates represent significant tax savings to most taxpayers.
2. State And Local Tax Deductions Skyrocket To $40,000
Also part of the Tax Cuts and Jobs Act of 2017, state and local tax deductions were capped at $10,000. As I reported on Forbes, this limitation severely affected taxpayers in high tax states and municipalities, especially those who own homes, since many have significant SALT expenses throughout the year. Combined with the higher standard deduction from the act, many saw their SALT deductions effectively go away.
The One Big Beautiful Bill Act revitalizes these deductions by increasing the cap to $40,000. This cap will increase by 1% annually through 2029. On the flip side, the increased amount will be subject to an income limitation based on modified adjusted gross income of $500,000 (also increasing 1% annually). Any income over $500,000 will reduce the deduction by 30%. For instance, if a taxpayer has $550,000 of modified adjusted gross income, the excess $50,000 will reduce the SALT deduction by $15,000, and the taxpayer will be capped at a SALT deduction of $25,000. This means that taxpayers who make over $600,000 will continue to have a SALT deduction cap of $10,000.
Importantly, these deductions can only be taken if the taxpayer itemizes their taxes. In 2025, the standard deduction is $30,000 ($15,000 if single). The higher SALT deduction cap will enable more taxpayers to itemize.
3. A Boost For Parents And Their Children Through A Larger Child Tax Credit And The New $1,000 Trump Accounts
The One Big Beautiful Bill Act both preserves and boosts the child tax credit to $2,200. Starting in 2025, taxpayers will be eligible to receive a tax credit of $2,200 for each qualifying child. As this is a credit, this represents a dollar-for-dollar reduction in tax liability. For example, if you have taxable income of $100,000 and owe $15,200 in taxes, the child tax credit for one kid would lower your tax liability to $13,000.
However, the child tax credit has its limits. According to Newsweek, the portion of the tax credit that is refundable (meaning it can be received with little or no income) will not change. Thus, taxpayers making less than their estimated income of $2,500 will not receive the additional $200 and will, instead, receive only $1,600 of this credit. Additionally, the phase-out rules for this credit will remain in effect, meaning that married taxpayers with taxable income exceeding $400,000 will receive reduced benefits from this tax credit.
Also introduced in the One Big Beautiful Bill are the $1,000 Trump Accounts. As I discussed on Forbes, the federal government will provide children born between 2024 and 2028 with a $1,000 savings account that can be invested and used for their future needs. The money and its earnings will receive beneficial tax treatment if the child ultimately uses the funds on higher education, buying their first home, or starting their own business.
4. No Tax On Tips, Overtime, And Car Loan Interest
A hot item during the 2024 election was the proposal of not taxing tips. The House and Senate each had their own versions of not taxing tips, yet, they were then rolled into the One Big Beautiful Bill Act. The version that appears to have survived is an exemption of $25,000 of tip income. As I discussed on Forbes, the deduction will be limited to individuals who work in only agreed-upon professions, thereby limiting the ability for those not typically paid in tips to restructure their income artificially to take advantage of the deduction. The deduction will also only be for those under certain income levels ($150,000 if single, $300,000 if married).
However, that is not the only new deduction aimed at middle-class taxpayers. Taxable income from working overtime up to $12,500 ($25,000 if married) can now be deducted. Similar to the tax-free status of tips, this deduction is subject to an income cap of $150,000 ($300,000 if married). Furthermore, the One Big Beautiful Bill Act provides a $10,000 deduction for interest on car loans. This deduction is limited to taxpayers with a taxable income of $100,000 or less ($200,000 if married).
These benefits provide substantial relief for the middle class, especially since they are structured as deductions, rather than income exclusions, allowing these taxpayers to continue contributing to retirement accounts and Social Security. However, taxpayers should be aware that the deductions are provided at the federal level, meaning that they may still owe taxes on income to their state if the state does not conform.
5. Seniors Older Than 65 Get An Additional $6,000 Tax Deduction, Their Decedents Benefit From A $15 Million Estate Tax Exemption
A key campaign promise by Trump was to remove taxes on Social Security income. Doing so was easier said than done, leading Congress to come through on Trump’s promise in spirit with a $6,000 deduction for taxpayers ages 65 and older. This deduction is available to taxpayers who earn less than $75,000 ($150,000), meaning it is primarily geared toward seniors who are retired or have lower incomes.
However, the benefits are not just accruing to the seniors themselves. The One Big Beautiful Bill Act also raises the federal estate tax exemption to $15 million. As discussed by Grassi Advisors, this higher limit changes the game on how wealthy taxpayers need to consider wealth transfer by way of altering trusts and strategic giving. However, they do note that many state tax estate considerations remain static, meaning that taxpayers may need to focus more on their specific state rules when managing their estates.
These key changes are not all that is packed into the nearly 1,000-page One Big Beautiful Bill Act. However, they do represent some of the most impactful to individual U.S. taxpayers should President Trump sign it into office on the Fourth of July.
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