What You Need to Know about the One Big Beautiful Bill

On July 4th, President Trump signed the “One Big Beautiful Bill” into law after passage by both chambers of Congress days earlier. The $4.5 trillion tax bill contains numerous provisions that will affect financial planning for many across the United States. Here is what is most likely to impact you and your family.

Lower Tax Brackets

Tax rates on ordinary income were lowered in 2017 as part of the Tax Cuts and Jobs Act (TCJA); however, the rates were scheduled to sunset at the end of 2025 and then revert back to higher pre-2017 levels. As part of the One Big Beautiful Bill, the reduction in rates will remain permanent.

This provision means that the vast majority of Americans will pay less in taxes going forward and enables taxpayers to continue taking advantage of planning strategies like Roth conversions while rates remain historically low.

Standard Deduction

The standard deduction was increased significantly as part of the TCJA, resulting in lower taxes for most. The One Big Beautiful Bill makes the increase permanent. The standard deduction will increase to $15,750 for single filers and $31,500 for married filing jointly and will be adjusted for inflation annually.

State and Local Tax Deduction

As one of the most debated elements of the bill, many were intrigued to find out where Congress landed in the final version. For those with income up to $500,000, the maximum deduction for state and local taxes (SALT) will increase from $10,000 to $40,000. This increase will start in 2025 and end in 2029. Those with income above $500,000 can still deduct at least $10,000.

Note that SALT are “below the line” deductions, meaning they are only available to taxpayers who itemize as opposed to those who take the standard deduction. And with more than 90% of taxpayers taking the standard deduction according to the latest data from the IRS, this provision will not apply to most.

Estate Tax Exemption

Another TCA provision, the estate tax exemption will climb to $15 million for individuals and $30 million for families in 2026. These levels are permanent and will be increased annually for inflation.

This provision significantly affects planning and removes the need for complex estate planning for many Americans who are below the threshold.

Tips and Overtime Pay

There has been some confusion around how taxes will work going forward on tips and overtime pay given Trump’s campaign promise that they won’t be taxed. This will actually work as a deduction.

The bill creates an “above the line” deduction for 2025-2028 for tips and overtime pay up to $25,000 for married filing jointly and $12,500 for single filers. An “above the line” deduction can be claimed regardless of whether a person claims the standard deduction or chooses to itemize.

It is also important to note that the deduction phases out at $150,000 for single filers and $300,000 for married filing jointly.

Tax Break for Seniors

Similar to tips and overtime pay, the One Big Beautiful Bill does not eliminate taxes on Social Security, but it does provide a deduction for many seniors. Most seniors with income less than $75,000 (or $150,000 for couples) are eligible for a $6,000 “above the line” deduction per year between 2025 and 2028. This will eliminate taxes on Social Security benefits for the vast majority of seniors during those years which is notable given that nearly three-quarters of seniors depend on Social Security for a majority of their income.[1]

However, a consequence to this new deduction is that the lost tax revenue will likely bring Social Security to insolvency as much as two years earlier than the current projection of 2034. While we recommend not worrying about insolvency at this time, Congress will need to take action to ensure that Americans continue to receive their benefits.

While there are a number of other provisions in the bill, we believe the above are most likely to impact you. Please reach out to your advisor with specific questions. If you are reading this and don’t have a financial advisor providing comprehensive financial planning, please reach out to us at (540) 345-3891 or by clicking the “Schedule a Call” button in the top right-hand corner of your screen.

Reference

[1] https://401kspecialistmag.com/nearly-22-million-seniors-live-on-social-security-alone-tscl/#:~:text=Nearly%2022%20Million%20Seniors%20Rely%20Solely%20on%20Social%20Security:%20Study.&text=An%20estimated%2031.8%20million%20seniors%20get%20by,released%20Monday%20by%20The%20Senior%20Citizens%20League.