One Big Beautiful Bill Act Summary
The purpose of this post is to clarify key elements of the "Big Beautiful Bill" passed earlier this month. While the largest provision is the permanent extension of income tax rates established by the Tax Cuts and Jobs Act of 2017 (TCJA) set to expire this year, several other important aspects are worth highlighting. Here’s what we know thus far…
Senior bonus deduction
The law provides a temporary "bonus" tax deduction (in addition to the existing standard deduction) that beneficiaries can claim to lower their overall federal income tax liability. Here’s how it works: Seniors aged 65 and older with a modified adjusted gross income (MAGI) of $75,000 or less ($150,000 or less for couples filing jointly) will receive a tax deduction of $6,000 ($12,000 for couples filing jointly) regardless of whether they itemize their taxes or claim the standard deduction.
Deductions are smaller, however, for incomes exceeding these amounts—more specifically, reduced by six cents for every dollar earned over the income threshold. Seniors with a MAGI above $175,000 ($250,000 for joint filers) won’t qualify for any "bonus" deductions, which are temporary and set to expire at the end of 2028.
Savings accounts for children (Invest America)
The Invest America (aka “Trump Accounts”) initiative aims to create tax-advantaged savings accounts for all children, with the goal of reducing the wealth gap and promoting financial literacy. These accounts are set to become available in July 2026. Any parent or guardian can open an account for a child under the age of 18, with children born between January 1, 2025 and December 31, 2028 receiving a $1,000 seed contribution from the federal government to help jumpstart their savings. Parents or guardians may contribute up to $5,000 per year to each account—not including government contributions—with employer matches allowed, reflecting a maximum of $2,500 from a parent’s employer included in this total.
While funds invested in these accounts are fully managed and grow tax deferred, investment options are limited to U.S. stock market funds. They’re also “portable,” meaning you can transfer your account to a different approved financial institution if needed with the money held in a custodial trust until the child turns 18—at which time the account will automatically convert into a traditional IRA. Funds can then be withdrawn for qualifying expenses (e.g., college tuition, professional training, first-time home purchases, or to start a business). Money withdrawn prior to the age of 18 is considered a premature distribution, subject to ordinary income tax and incurring a 10% penalty.
If a parent or guardian does not voluntarily open an account for a newborn child, the Secretary of the Treasury will create one on the child’s behalf.
“No tax” on tips
Retroactive to the beginning of 2025, tip-based employees (e.g., servers, bartenders, hairstylists, etc.) will be able to deduct qualified tips from their taxes. These are defined as voluntary cash or charged tips received from customers or via tip sharing, with mandatory service charges and gratuities added by a service provider likely not eligible.
Employees can deduct up to $25,000 of their tips annually, while self-employed individuals can deduct up to their yearly net income. The deduction phases out for single taxpayers who make more than $150,000 a year and married taxpayers who make $300,000 jointly. The IRS will provide a list of qualifying occupations by October 2, 2025.
“No tax” on overtime
The new bill allows workers who receive overtime pay to deduct any amount they earn above their regular pay rate. For example, if you earn $20 per hour for non-overtime work and $30 per hour for overtime, you can only deduct the $10 difference from your overtime pay. Not all overtime pay is eligible; overtime wages are paid per Section 7 of the Fair Labor Standards Act of 1938 (FLSA), which generally applies to employees who work more than 40 hours per week.
Single workers can deduct up to $12,500 of overtime annually, rising to $25,000 for married workers, and the aforementioned income phaseouts still apply. Note this overtime deduction is temporary and set to expire in 2028.
Car loan interest deduction
Taxpayers can deduct the interest (up to $10,000 each calendar year) on a vehicle loan if they purchased (not leased) a qualified vehicle after December 31, 2024 for personal use. So, what exactly is a “qualified vehicle”? Further clarification is needed from the IRS, but this stipulation is currently defined as a new (not used) car, minivan, van, SUV, truck, or motorcycle that weighs less than 14,000 pounds and underwent final assembly in the U.S.
The deduction gradually phases out for single taxpayers who earn more than $100,000 per year and married taxpayers who earn $200,000 jointly, with a phase-out amount of $200 for every $1,000 of income over single and joint filer thresholds. Anyone who earns more than $150,000 a year ($250,000 jointly) is ineligible for the tax deduction, which is also temporary (effective for tax years 2025 through 2028).
The SALT cap
The Act now allows taxpayers to deduct up to $40,000 (previously $10,000) in state and local taxes (SALT) on their federal income tax return, increasing by 1% each year until 2029 but scheduled to revert back to $10,000 in 2030. Deduction phaseouts, meanwhile, begin when single filers have a modified adjusted gross income (MAGI) exceeding $250,000 ($500,000 for joint filers), with these thresholds increasing annually. The SALT deduction is reduced by 30% of the amount exceeding the threshold for incomes above these limits but will never fall below $10,000. As a result, households with MAGIs exceeding $600,000 in 2025 are limited to a $10,000 SALT deduction.
Other things to know about the Bill
A few other considerations that could possibly impact you include…
Estate and gift tax exemption increase
The estate and gift tax exemption—allowing for the tax-free transfer of wealth from one generation to the next—reflects the amount of assets an individual can give away during his/her lifetime before incurring a gift tax (or, to the extent not used during life, the amount of estate assets permitted to be sheltered from estate tax upon one’s death). The law institutes a permanent (and inflation-adjusted) exemption level of $15 million beginning in 2026.
Electric vehicle (EV) credit expiration
Electric vehicles purchased after September 30, 2025 will no longer qualify for tax credits, previously $7,500 for new vehicles and $4,000 for used models.
Soon-to-be permanent standard deduction
The standard deduction, which significantly increased in 2017, is set to become a permanent benefit: rising to $15,750 for single filers and $31,500 for joint filers and adjusted for inflation.
Child tax credit (CTC) increase
For those with children under the age of 17, the child tax credit will increase to $2,200 per child (from $2,000). To claim this, both parents (or parent) and child must have a Social Security number and earn less than $200,000 as an individual filer or $400,000 for joint filers (with the credit phasing out completely above this threshold).
Expanded HSA and 529 plan benefits
If you participate in a health savings account (HSA), you can now pay up to $150 a month ($300 for families) for primary care arrangements and use 529 plan funds to cover testing fees and tutoring outside the home.
Still-taxable Social Security
The bill does not eliminate federal taxes on Social Security nor make any changes to this program, despite what you may have heard or read online.
Key takeaways: One Big Beautiful Bill Act
There is a lot to unpack in the new law, truth be told, which spans nearly 900 pages. Hopefully this article helped save you some time!
Still have questions about the new tax laws? Don’t hesitate to schedule a FREE discovery call with one of our CFP® professionals to get them answered.
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Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.
