What Does the One Big Beautiful Bill Really Mean for Your Wallet?

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), one of the most sweeping tax and spending packages in recent history. For families, retirees, gig workers, and business owners alike, this bill brings targeted tax relief, structural changes to healthcare coverage, and funding shifts that will affect daily life in nuanced ways.

But what does this really mean for your finances, your healthcare, and your state?

Why budget reconciliation matters:
OBBBA passed through a process called budget reconciliation. In simple terms, this allowed Congress to bypass the traditional 60-vote filibuster in the Senate and instead pass the bill with a simple majority. This fast-tracked major tax and spending reforms with limited debate – reshaping laws without requiring broad bipartisan support.

At a Glance: What’s Inside OBBBA?

Detailed Summary of Key Laws Impacted

1. Tax Cuts and Jobs Act (TCJA) Extension

• Prior rule: The lower individual tax rates enacted under TCJA were scheduled to expire after 2025. Rates would revert to higher pre-2018 levels.
• OBBBA change: Makes these rates permanent, locking in the brackets of 10%, 12%, 22%, 24%, 32%, 35%, and 37% for future years.
• Impact: Provides long-term tax rate certainty for individuals and households across income brackets.

Example:
A single taxpayer earning $60,000 remains in the 22% marginal bracket permanently.
Effective 2026 onward.

2. SALT Deduction Cap Increase

• Prior rule: Taxpayers could deduct up to $10,000 of combined state and local taxes.
• OBBBA change: Raises the cap to $40,000 from 2025 to 2029, with a phaseout for AGI over $500,000 (reduced by 30% of excess income but never below $10,000). Reverts back in 2030.
• Impact: Benefits homeowners in high-tax states who were previously limited under the $10,000 cap.

Example:
A married couple in NJ paying $35,000 in state/property taxes deducts the entire amount in 2025.

3. Extra Deduction for Seniors

• Prior rule: No additional deduction beyond the standard deduction and existing age-based increases.
• OBBBA change: Adds a new $6,000 deduction for taxpayers aged 65 and older, phased out by 6% of income over $75,000 (single) or $150,000 (joint), applicable from 2025-2028 only.
• Impact: Provides targeted relief to seniors with modest to moderate incomes.

Example:
A retiree earning $80,000 sees their deduction reduced by $300 (6% x $5,000 excess).

4. No Tax on Tips

• Prior rule: Tips are treated as fully taxable wages.
• OBBBA change: Excludes up to $25,000 in tip income from taxable income, phased out by $100 per $1,000 AGI over $150,000 ($300,000 MFJ).
• Impact: Major tax relief for service industry workers within the income thresholds.

Example:
A waiter earning $20,000 in tips pays no federal tax on them if AGI is below $150,000. Effective 2025 onward.

5. No Tax on Overtime Pay

• Prior rule: All overtime wages are fully taxable.
• OBBBA change: Excludes up to $12,000 in overtime pay from taxable income, with the same income-based phaseout as tips.
• Impact: Reduces tax burdens for workers relying on overtime to supplement earnings.

Example:
A nurse earning $10,000 in overtime pays no tax if AGI is under $150,000. Effective 2025 onward.

6. Car Loan Interest Deduction

• Prior rule: Personal car loan interest was not deductible.
• OBBBA change: Allows deduction of up to $10,000 in car loan interest annually, with income-based phaseouts.
• Impact: Benefits rideshare drivers and commuting workers financing vehicle purchases.

Example:
An Uber driver paying $4,000 in annual car loan interest deducts the full amount. Effective 2025 onward.

7. Child Tax Credit Increase

• Prior rule: $2,000 per child, with $1,400 refundable.
• OBBBA change: Increases to $2,200 per child, still with $1,400 refundable.
• Impact: Modest additional relief for families with children, particularly those under refundable income thresholds.

Example:
A family with three children receives a $6,600 credit, with a refundable portion capped at $4,200.
Effective 2025 onward.

8. Elimination of Certain Green Energy Tax Breaks

• Prior rule: EV buyers could claim a $7,500 credit; solar and wind installations received up to 30% tax credit.
• OBBBA change: Ends these credits after 2025.
• Impact: Reduces incentives for clean energy purchases starting in 2026.

Example:
A Tesla buyer in 2026 loses eligibility for the $7,500 EV credit.

9. Qualified Business Income (QBI) Deduction Made Permanent

• Prior rule: The 20% deduction for pass-through income was scheduled to sunset after 2025.
• OBBBA change: Makes it permanent, with phase-in thresholds adjusted to $75,000 (single) / $150,000 (MFJ) and a minimum deduction of $400 if QBI ≥ $1,000.
• Impact: Provides long-term planning certainty for small business owners and self-employed individuals.

Example:
A sole proprietor with $100,000 QBI deducts $20,000.
Effective 2026 onward.

10. SALT Workarounds for Pass-Through Entities

• Prior rule: Some states enacted PTE taxes to bypass the SALT deduction cap for pass-through owners.
• OBBBA change: Confirms and preserves these state-level workarounds.
• Impact: Ensures continued deductibility of state taxes paid at entity level for eligible business owners.

Example:
An NY S-Corp continues deducting state taxes at entity level to bypass the individual SALT cap.

11. 100% Bonus Depreciation Returns

• Prior rule: Bonus depreciation was scheduled to phase down from 2023 onwards.
• OBBBA change: Makes full expensing permanent for qualifying new and used assets placed in service after Dec 31, 2025.
• Impact: Encourages capital investment by allowing immediate deductions rather than gradual depreciation.

Example:
A landscaping company deducts the entire $85,000 truck purchase in one year.

Beyond Taxes: Health and Social Program Impacts

Transition: Beyond tax reform, OBBBA reshapes America’s health and safety nets.

Medicaid and ACA Eligibility Changes

• What changed: Adds work requirements for Medicaid, tightens ACA eligibility, and ends certain premium tax credit expansions.
• Projected impact:
  • 11.8 million people lose coverage by 2034 due to Medicaid work requirements and eligibility changes.
  • An additional 5.1 million lose coverage as ACA premium tax credit expansions expire and marketplace eligibility rules tighten.
  • Total at risk: Up to 16.9 million nationwide.

Counterpoints:
- Supporters argue: Work requirements reduce fraud and incentivize employment.

- Critics warn: These changes disproportionately impact low-income and vulnerable populations, increasing uninsured rates and state-level administrative burdens.

State-Level Implications

• Medicaid and ACA: Increased coverage losses from eligibility changes and noncitizen restrictions.
• Funding: Reduced federal Medicaid funding increases state budget strain.
• Administration: States face higher technology and staffing costs to implement new eligibility and work requirement systems.

Note: Some provisions exempt U.S. territories from these changes.

Economic and Fiscal Impact

• Deficit effect: The bill’s targeted tax cuts and limited base-broadening are projected to increase the federal deficit, though exact CBO figures remain pending.
• Adding complexity means more compliance burdens for individuals and businesses navigating overlapping phaseouts and new deductions.
• While targeted tax breaks help some, critics note the lack of structural reform to simplify or broaden the tax base.

Final Thought

For families, retirees, gig workers, and business owners, these changes are not just policy – they shape daily life.

If you earn under $150,000, OBBBA’s new exclusions for tips, overtime, and car loan interest may boost your take-home pay. Meanwhile, business owners gain permanent expensing and QBI certainty but must navigate new planning complexities.

Want a custom tax impact analysis for your 2025-2026 planning? Let us know – we’re here to help you translate policy into strategy for your household or business.