What the One Big Beautiful Bill Act Means for You

Tax Rates

The lower individual income tax rates and wider tax brackets that were introduced by the TCJA have been made permanent.* The top rate will remain at 37% and the marriage penalty relief for most brackets continues. Married couples filing jointly will typically not face higher taxes in comparison to filing as singles. The brackets will also continue to be adjusted annually for inflation.

Standard Deduction

The standard deduction has been permanently increased.* For 2025, the standard deduction increases to:
- Single filers: $15,750
- Married joint filers: $31,500
- Head of household filers: $23,625
The standard deduction will be adjusted for inflation annually thereafter.

Personal Exemption and Senior Deduction

While the personal exemption deduction has now been permanently eliminated, seniors who are age 65 or older will temporarily receive a $6,000 deduction for tax years 2025 through 2028.* This deduction will begin to phase out once the taxpayer’s adjusted gross income reaches $75,000 for single filers and $150,000 for married joint filers.

Estate and Gift Tax Exemption Amounts

Effective for estates of decedents dying and gifts made after December 31, 2025, the exemption has been increased to $15 million per taxpayer ($30 million for married couples). This exemption will be indexed for inflation annually after 2026.

Child Tax Credit

Starting in 2025, the tax credit has increased to $2,200 with an annual inflation adjustment. This tax credit will continue to be subject to income-based phaseout. The new tax bill requires each child being claimed for this tax credit to have a social security number.

Child and Dependent Care Credit

Beginning in 2026, the child and dependent care credit will increase from 35% to 50% of eligible expenses, up to $3,000 for one qualifying individual or $6,000 for two or more. The full 50% rate will begin to phase out for families with adjusted gross income over $15,000 and gradually reduces to 35% for AGI up to $75,000 (or $150,00 for married joint filers).

Car Loan Interest

For tax years 2025-2028, individuals can deduct up to $10,000 per year for the interest paid on their auto loans, even if they do not take the itemized deduction. For single filers with income over $100,000 (or married joint filers over $200,000), the deduction will be reduced by $200 for every $1,000 over the income limit. Qualifying vehicle needs to be new, U.S.- assembled, and secured by a first lien with the taxpayer as the original owner.

New Tax-Deferred Investment Account for Children

The Department of the Treasury will automatically open a tax-deferred investment account, aka the Trump Account, for every eligible child born between January 1, 2025 through December 31, 2028. The federal government will contribute $1,000 to each account. Individuals can contribute up to $5,000 per year, adjusted for annual inflation beginning in 2028, using after-tax dollars for each child until the year a child turns 18. Employers can also contribute to employees’ children’s account up to $2,500 a year, also adjusted for inflation annually beginning in 2028. This amount will not be counted as income to their employees. The funds within these accounts must be invested in a diversified U.S. equity index fund. No distribution is allowed until the child turns 18, at which point the account is treated just like an IRA. The money will grow tax-deferred, and withdrawals of any tax-free contributions and earnings will be taxed subject to the ordinary income tax rate. There will be a 10% penalty if any withdrawals are made before the account holder reaches the age of 59 ½ unless they meet the qualifying exception just like an IRA, e.g., education expense or first-time home purchase (up to $10,000).  

Qualified Expenses for 529 Plans

Qualifying K-12 education expenses for 529 plans have broadened to include not just tuition, but also curriculum, books, online materials, tutoring, standardized test fees, dual enrollment and educational therapies for students with disabilities. The annual limit for K-12 distributions doubles from $10,000 to $20,000 per beneficiary starting in 2026.
529 plan distributions have also been expanded to include "qualified postsecondary credentialing expenses" for enrollment in recognized certificate, licensing, or apprenticeship programs even if they are not traditional degree programs.

State and Local Income Tax Deduction

The deduction for the state and local income tax has been temporarily increased to $40,000 from the current $10,000 limit for tax years 2025 through 2029. This deduction will begin to phase out for single tax filers with adjusted gross income over $250,000 and $500,000 for joint filers. The deduction limit and income limit will be increased by 1% annually through 2029.

Pease Limitation for Itemized Deduction

Starting in 2026, the Pease limitation, which reduces itemized deductions for high earners, is permanently repealed.* Instead, individuals in the top tax bracket will have a cap limiting deduction benefit of 35%.

Charitable Deduction

Beginning in 2026, individuals who are not taking the itemized deduction will be able to claim a universal charitable deduction up to $1,000 for single filers and $2,000 for married joint filers. For those who are taking the itemized deduction, the new tax bill establishes a 0.5% adjusted gross income (AGI) minimum threshold for charitable deduction. For example, a couple with an AGI of $300,000 could only deduct charitable donations in excess of $1,500. The 60% AGI contribution limitation for cash gifts to qualified charities is made permanent.*

Qualified Business Income (QBI) Deduction

The 20% QBI deduction has been made permanent under the new tax bill.* It also creates a minimum deduction of $400 for taxpayers with at least $1,000 of qualified business income from one or more active businesses in which they materially participate in.

Tips and Overtime Income

For tax years 2025-2028, individuals can deduct up to $25,000 of tip income and $12,500 of qualified overtime pay ($25,000 for married joint filers). Both deductions will gradually decrease once the modified adjusted gross income exceeds $150,000 ($300,000 for married joint filers).

Electric Vehicles Tax Credit

The tax credit for qualifying electric vehicle purchases will expire on September 30, 2025. Consumers must have the vehicle in their possession by the deadline; otherwise, they will not be eligible for the tax credit going forward.

Consumer Solar Tax Credit

The 30% residential solar panel tax credit will expire after end of 2025. The installation of the solar panels needs to be completed before year end to qualify for this tax credit.