On July 4th, the One Big Beautiful Bill (OBBB) was officially signed into law by President Trump. According to an analysis by the Congressional Budget Office (CBO), it will add an estimated $3.3 trillion to the national debt over the next 10 years.
The finalized version of this legislation was 870 pages long and covered a comprehensive range of topics that included changes to tax policy, healthcare, education, and regulation across multiple sectors of the American economy.
Politics aside, the OBBB will directly impact the personal finances of American families for several years to come. The following are a few key highlights and what they mean for your household budget.
Tax Brackets Will Stay the Same
Front and center to this bill are the current Federal tax brackets. The U.S. has a progressive tax system, meaning the more a person makes, the higher their rate.
Back in 2017, during Trump’s first term, the Tax Cuts and Jobs Act (TCJA) lowered the country’s seven tax bracket rates:
- From 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%
- To 10%, 12%, 22%, 24%, 32%, 35%, and 37%
Originally, these lower TCJA rates were set to expire by the end of 2025. However, the OBBB guarantees that they will continue indefinitely.
While it’s standard practice for each of the individual tax brackets to adjust each year for inflation, one interesting tweak out of the OBBB is that the ‘base’ year used to calculate this value was changed from 2017 to 2016 for 10% and 12% tax brackets only. Although somewhat minor, it does effectively mean the income thresholds for these brackets will be slightly higher.
Higher Standard Deductions Extended
Another widely popular change that started with the TCJA and is now made permanent by the OBBB is higher standard deductions.
When Americans file their taxes, they usually choose between two options:
- Take a simple standard deduction, or
- Go through the more complex task of itemizing your deductions.
Classically, tax preparers would explore both avenues to see which one was more advantageous. However, the TCJA doubled the standard deduction, effectively making it the go-to option for the vast majority of filers. Not only did this lower the tax bill for the majority of low to middle-class Americans, but it also helped to streamline the tax filing process.
Similar to the tax rates, the higher standard deduction was set to expire by the end of 2025. However, they will now stay in place and continue to adjust for inflation each year.
Tips and Overtime are Now Tax Free
If you were holding your breath waiting for Trump to follow through on his campaign promise to make tips and overtime tax-free, you can now sigh in relief.
The OBBB makes the following deductible:
- Up to $25,000 of tipped income
- Up to $12,500 of overtime pay (or $25,000 for joint filers)
Of course, like most deductions, your ability to use it will be based on how much money you earn (i.e., your Modified Adjusted Gross Income or MAGI). The deduction begins to phase out when MAGI reaches $150,000 for single filers and $300,000 for joint filers. The value of the deduction will drop by $100 for every $1,000 of income above those amounts.
This benefit is only scheduled to remain in effect through 2028.
Child Tax Credit Increases
Those of you with minor children who claim the Child Tax Credit (CTC) will be happy to hear that not only will it not be reverting to its old value, but it will also be going up (again)!
Back in 2017, the TCJA doubled the credit from $1,000 to $2,000 per child. However, like the tax brackets, this was set to expire by the end of 2025. Per the OBBB, not only will this no longer occur, but it will have a new, higher value of $2,200 when you file for the 2025 tax year.
Savings Accounts for Children
Speaking of children, here’s something new: The OBBB allows for the creation of so-called Trump accounts.
These are a new type of child’s savings account where parents and other adults are encouraged to contribute. To get started, the Federal government will make a one-time deposit of $1,000 for every child born between 2025 and 2028 with a valid Social Security number.
The idea is that today’s youth will one day have money for college, be able to afford a home, or get a head start on saving for retirement. Funds will be invested in low-cost index mutual funds or ETFs and can’t be withdrawn until the child turns 18 years old. After age 18, the account is treated just like a traditional IRA, where a 10% tax penalty may apply unless the withdrawals are for a qualified expense.
The accounts will become available in July 2026. There are also no income requirements to qualify.
Charitable Donations
Being generous is a good thing. But when it came to your taxes, this was typically only recognized if you itemized your deductions.
Now, per the OBBB, you can claim up to $1,000 (or $2,000 if filing jointly) – even if you take the standard deduction. Note that this only applies to donations made in cash. Other types such as dropping off clothes and household goods to Goodwill won’t count towards this specific deduction.
Student Loan Repayment Terms
The options for students and parents who either plan to borrow money from the government or have already just become more limited.
First, the OBBB phases out several existing federal student loan repayment plans. This includes PAYE, IBR, ICR, and the relatively new SAVE plan introduced under former President Biden.
From now on, borrowers will only have two options:
- A standard repayment plan with fixed payments over the course of 10 to 25 years.
- An income-driven repayment (IDR) plan where the remainder of your debt is forgiven after 30 years.
There are additional changes as well. For example, borrowers who face economic hardship or unemployment will no longer qualify for deferment. There are also now caps on how much Parent PLUS and Grad PLUS loans are willing to lend.
Additional Senior Tax Deduction
If you happen to be 65 years or older, then you get to add an extra $6,000 to the standard deduction. What’s great is that this is in addition to the extra $2,000 single filers and $3,200 married filers are currently able to deduct if they’re in this age group. Similar to other deductions, this benefit phases out for filers with MAGIs over $75,000 for single filers and $150,000 for joint filers.
Note that if you happen to hear that the OBBB eliminates taxes on Social Security, this is not entirely accurate. Doing away with taxes on Social Security benefits was a campaign pledge Trump originally made. However, this did not make it into the OBBB.
Instead, it offers this additional deduction which lowers a senior’s taxable income and effectively drops their tax bill to zero. According to the Council of Economic Advisers, this should be the case for approximately 88% of all seniors who receive Social Security.
Final Thoughts
Although not everyone may agree with everything inside the One Big Beautiful Bill, the reality is that it has been signed into law. Therefore, it’s in your best interest to understand the changes and use them to your advantage as best as you can.
Featured image credit: Wikipedia
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