The One Big Beautiful Bill, as the new tax bill is called, makes some significant changes to Americans’ personal finances.
At close to 1,000 pages, the legislation makes permanent the 2017 tax cuts and introduces new tax breaks—including deductions for tips, overtime pay, and auto loan interest—and gives a special $6,000 deduction for seniors who receive Social Security. (I figured it will save me about $1,400 a year in taxes. WooHoo!)
The bill makes cuts to begin eliminating fraud in social programs such as Medicaid and food assistance, eliminates tax incentives for clean energy, and overhauls the federal student loan system.
So, what does it mean for your wallet?
Maintaining the Tax Cuts
The most important part of the legislation is the permanent extension of the tax cuts first enacted under the Tax Cuts and Jobs Act of 2017. That law reduced marginal tax rates across the board, with most brackets seeing cuts of roughly 2 to 4 percent.
Those tax cuts were set to expire after 2025, which could have resulted in higher taxes for more than 60 percent of taxpayers by 2026, according to a 2024 Tax Foundation report. This legislation preserves those tax reductions and actually enhances several key provisions.
For New Parents
One of the more novel features in the bill is the creation of new “Trump Accounts” for children born between 2025 and 2028.
Under the provision, the federal government will make a one-time $1,000 deposit for every eligible child who is a U.S. citizen. Parents can contribute up to $5,000 annually, with investments growing tax-deferred in a fund that tracks a U.S. stock index. Employers can also chip in up to $2,500, contributions that won’t count as taxable income for the employee.
Withdrawals from the accounts will be taxed as long-term capital gains if used for qualified purposes.
Child Tax Credit Changes
The child tax credit increases from $2,000 to $2,200 per child starting in 2025 and then will be indexed for inflation going forward. Up to $1,700 of that amount will be refundable (up from $1400), providing cash back even for families who owe little or no income tax.
This change builds on the 2017 tax cuts, which had doubled the credit from $1,000 to $2,000 but were scheduled to expire after 2025. With this bill, the higher credit becomes permanent.
Buying a Car
You will be able to deduct up to $10,000 in interest on new auto loans taken out between 2025 and 2028. The deduction phases out for individuals earning over $100,000, or $200,000 for married couples filing jointly.
The vehicles that qualify must be assembled in the United States, aligning with a focus on supporting domestic manufacturing.
Tips and Overtime
The bill allows individuals to deduct up to $25,000 of tip income annually from federal taxes between 2025 and 2028. The deduction phases out for individuals earning more than $150,000, or $300,000 for joint filers.
Also, those working overtime will benefit from a tax deduction for overtime pay. Single filers can deduct up to $12,500 in overtime income, while joint filers can deduct up to $25,000. The deduction phases out for higher earners and expires after 2028.
Small Businesses and Gig Workers
Small business owners, contractors, and gig economy workers will benefit from the permanent extension of the Section 199A pass-through business deduction.
Originally enacted in the 2017 tax cuts, this provision allows certain business owners to deduct up to 20 percent of their qualified business income. The deduction, previously set to expire after 2025, is now permanent under the new law. Being permanent will make tax planning a lot easier.
Living in a High-Tax State
The bill raises the cap on state and local tax (SALT) deductions - which allow taxpayers who itemize to subtract what they’ve paid in state and local income and property taxes from their federal taxable income. This is important for residents of high-tax states such as New York, New Jersey, and California.
It raises the SALT cap from $10,000 to $40,000 starting in 2025. It will then rise by one percent annually through 2029 before reverting to $10,000 in 2030. Note that the expanded deduction begins phasing out for taxpayers with income above $500,000.
Relief for Seniors
While it doesn't eliminate taxes on Social Security benefits, the bill provides a $6,000 annual deduction for Social Security income.
The deduction phases out for individuals earning over $75,000 and couples earning over $150,000, and is unavailable to single filers earning $175,000 or more or joint filers above $250,000.
The Social Security Administration estimates that nearly 90 percent of beneficiaries will see no federal taxes on their benefits under this change, describing the One Big Beautiful Bill as providing “meaningful and immediate relief to seniors who have spent a lifetime contributing to our nation’s economy.”
The expanded tax breaks under the bill will reduce the overall tax burden on Social Security recipients by roughly $30 billion each year, according to an estimate by the Tax Foundation. They also said that this could accelerate the projected insolvency dates for the Social Security and Medicare trust funds by about a year. Although if the economy grows faster than projected, that may extend the date. Nobody really knows for sure.
Borrowing Money for College Education
There is a mix of benefits and new restrictions in this category.
Pell Grants expand to cover short-term, workforce-focused programs, broadening access for students pursuing nontraditional education paths. (We do need a lot more people in the trades.) But, the bill imposes new borrowing caps to go along with that.
Graduate students will be restricted to $20,500 per year and a lifetime maximum of $100,000 for unsubsidized loans, while professional degrees such as law and medicine will face caps of $50,000 annually and $200,000 over a lifetime.
Parents who borrow through Parent PLUS loans will be limited to $20,000 per year per child, with a lifetime ceiling of $65,000. Grad PLUS loans—which once allowed graduate students to borrow up to the full cost of attendance—will be eliminated altogether.
New borrowers will also have only two repayment options starting in mid-2026 - a standard fixed-payment plan or an income-driven repayment plan. The bill also eliminates deferments for unemployment or economic hardship, narrowing options for struggling borrowers to pause payments. People may actually have to think about borrowing so much, that they have debt for life.
Medicaid Recipients
The legislation imposes significant changes to Medicaid, with about $1 trillion in cuts projected over the next decade, in part due to the fact that some 10 million people will lose coverage. Now, you have to realize that a great part of those people are here illegally or people that can work but are too lazy to go get a job. The cuts also address states that are conning the federal government out of extra money.
The largest cuts come from new work requirements for able-bodied adults ($326 billion), tighter limits on how states can fund their programs through provider taxes ($191 billion), and stricter rules for state-directed Medicaid payments ($149 billion), according to an analysis from the Kaiser Family Foundation.
The bill also allocates $50 billion to support rural hospitals that could be affected by the cuts.
Food Stamps
States will now be required to contribute between 5 and 15 percent of the Supplemental Nutrition Assistance Program (SNAP) benefit costs, depending on their payment error rates, and must now cover 75 percent of administrative costs, up from the current 50 percent.
Work requirements will be expanded to include adults aged 55 to 64 and parents with children aged 14 and older. According to the Urban Institute, around 5.3 million households could see their benefits drop by at least $25 per month, with average monthly losses estimated at $146.