Rupa Pereira
By Rupa Pereira
FAANG, MAGA, FOMO, YOLO – you may be familiar with these acronyms. How about adding to that list?
TCJA was the previous big tax bill that was passed on December 31, 2017, and was scheduled to sunset on December 31, 2025. Of course, the administration that passed TCJA 1.0 is now back in office and was able to pass another significant piece of legislation TCJA 2.0 or more correctly: OBBBA, aka OB3 or “One Big Beautiful Bill Act”.
The “One Big Beautiful Bill Act” is a new law that changes a lot of things about taxes and government programs covering Social Security to tips, student loans to auto loans and domestic investments to foreign businesses.
It’s definitely keeping tax and financial professionals on their toes in that which provisions affects their clients and how. Over the course of the next few months, I’ll try to unpack some significant portions of this legislation. In no order, following are a few things affecting individuals.
Individual Income Tax Rates: The lower individual income tax rates (10%, 12%, 22%, 24%, 32%, 35%, 37%) from the TCJA are made permanent. Consider no change to your current tax brackets if there’s no change to income.
Standard Deduction: The increased standard deduction amounts from the TCJA are made permanent. For tax year 2025, there’s a slight increase (e.g., $15,750 for single filers, $31,500 for joint filers) on top of the inflation-adjusted permanent amount. The enhanced amounts are effective for tax years beginning in 2025.
State and Local Tax (SALT) Deduction Cap: A limitation on the amount of state and local taxes that can be deducted on federal income tax returns. The $10,000 cap is temporarily increased to $40,000 for tax years 2025 through 2029. This amount will increase by 1% annually during this period. Effective for tax years beginning in 2025 to 2030. There is an income phaseout limit to benefit from this extended cap.
Enhanced Deduction for Seniors: An additional deduction for older taxpayers. For tax years 2025 through 2028, individuals aged 65 or older can claim an additional $6,000 deduction per qualifying individual. Effective for tax years 2025 through 2028. There is an income phaseout limit for this deduction.
Child Tax Credit (CTC): A credit reducing tax liability for families with qualifying children. The base $2,000 per child credit (from TCJA) is made permanent, preventing its scheduled reversion to $1,000 after 2025. For tax years 2025 through 2028, there’s a temporary additional $200 per child, increasing the maximum to $2,200 per child. There are phaseout limits for high-income taxpayers.
“Trump Accounts”: A new savings vehicle designed to provide a financial head start for newborns. For children born between January 1, 2025, and December 31, 2028, the federal government provides a one-time $1,000 contribution to a newly established account. Families can also contribute up to $5,000 annually. The account grows tax-deferred, with qualified withdrawals (for education, first-time home purchase, small business) taxed at long-term capital gains rates. The government contribution is for children born starting January 1, 2025. There are no income limits for the initial $1,000 government contribution.
Deduction for Tips and Overtime Pay: New deductions for certain types of earned income. For tax years 2025 through 2028, new above-the-line deductions are introduced. Up to $25,000 of qualified tip income can be deducted. Up to $12,500 of qualified overtime income can be deducted ($25,000 for joint filers). Effective for tax years 2025 through 2028. There are income phaseout limits for both deductions.
Deductible Auto Loan Interest: A new temporary deduction for interest paid on certain car loans. For tax years 2025 through 2028, an above-the-line deduction of up to $10,000 for qualified passenger vehicle loan interest is allowed, specifically for new autos with final assembly in the United States. There is an income phaseout for this deduction.
Charitable Contributions Deduction: A deduction for charitable contributions that can be taken even by those who don’t itemize. Creates a permanent above-the-line deduction of $1,000 for individuals ($2,000 for joint filers) for charitable contributions. Effective for tax years beginning in 2026.
The OBBBA also introduced substantial reforms to both Medicaid, Medicare and the ACA marketplaces, generally aiming to reduce federal spending on these programs.
Medicaid Reforms: Adds new work requirements for able-bodied adults aged 19-64 without disabilities or dependents. Most changes to Medicaid will roll out between January 1, 2026, and January 1, 2028. It also narrows the categories of non-citizens eligible for full Medicaid services that were previously eligible.
Medicare: The bill delays the implementation of rules that would have made it easier for low-income seniors to be automatically enrolled in programs like Medicare Savings Plans. The law tightens the rules for Medicare eligibility for non-U.S. citizens, with some documented immigrants who have paid into Medicare potentially losing their benefits.
ACA Marketplace Changes: The OBBBA does not extend the enhanced premium tax credits and are scheduled to expire at the end of 2025. There’s also a requirement for annual re-verification of tax credit eligibility, eliminating the previous automatic re-enrollment process for those receiving premium tax credits.
We’ll continue coverage of OBBBA impact on education planning and student loans in the next month. Meanwhile:
A bill with a name quite grand,
Brought changes across the land.
With tips, loans, and pay, more money to save,
And some new rules for all to understand.
Rupa Pereira is a CFP, EA, CSLP and an Advice-Only Planner and Tax Professional based in North Carolina. She specializes in cross-border matters and all things financial planning. Contact: info@fwjplanning.com
