Laura answers a question about how taxes for a typical American will change due to the One Big Beautiful Bill.
Laura answers a question about how taxes for a typical American will change due to the One Big Beautiful Bill.
Transcript: https://money-girl.simplecast.com/episodes/whats-the-one-big-beautiful-bill-obbb-tax-overhaul/transcript
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Welcome back to Finance Friday, another special edition of Money Girl, where I answer your burning money questions! Adam sent me the following request:
"I know that the One Big Beautiful Bill (OBBB) that recently became law is really big. On an upcoming show, I'd love to hear highlights about changes that are coming for average Americans. Can you explain in simple terms how taxes for a typical individual or family will change, and tips to make the most of the OBBB?"
I had to prioritize this question because it came from my husband! We started talking about the new law, and he asked me to summarize the key tax changes. Since the volume of tax revisions makes it challenging to list quickly, I told him that I'd do some research and share it as a bonus podcast.
This podcast will review eight tax changes in the OBBB most likely to affect your finances. You'll learn what's changing, who it helps, and what you can do to prepare for upcoming tax law changes.
Welcome back to episode 945 of Money Girl–I appreciate you downloading the show! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, a Substack newsletter.
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What is the One Big Beautiful Bill (OBBB)?
You've probably seen a lot in the news lately about the One Big Beautiful Bill becoming a law on July 4, 2025. It's the most significant overhaul of U.S. taxes since the Tax Cuts and Jobs Act of 2017.
Some changes begin right away, and others don't take effect until January 1, 2026. So, even though taxes aren't the most exciting personal finance topic, I want to make sure you get the most from the new provisions, which can be complicated.
Some of the new law's changes make provisions from the Tax Cuts and Jobs Act permanent, such as our current tax rates. Otherwise, they were going to expire, taking our tax rates back to pre-2017 levels.
As I mentioned, this isn't a complete list of tax changes in the OBBB, but eight of the most significant revisions that you should know.
1. An increased SALT deduction.
A tax deduction is a predetermined amount that reduces your taxable income, which reduces the amount of tax you owe. The SALT, or state and local taxes deduction, has been a hot topic because many people pay high amounts. The deduction was previously capped at $10,000 but will increase to $40,000, with the adjustment made gradually from 2025 through 2030.
That's good news for taxpayers living in high-tax states and those with more expensive homes and high property taxes. However, once your modified adjusted gross income exceeds $500,000, the deduction phases out. So, only those earning less can claim the full deduction if they pay as much in state and local taxes.
RELATED: Maximize tax deductions–how a side gig or small business can lower your taxes
2. Higher standard deductions.
Another helpful tax deduction is the standard deduction, which reduces your taxable income based on various qualifications such as your tax filing status, age, and health status.
For 2025, the standard deductions will increase as follows:
In addition, individuals over 65 can claim an extra $2,000 or $4,000 if they're also blind. Those over 65 filing taxes jointly can claim an additional $1,600 or $3,200 if they're also blind.
On top of the extra deduction, the OBBB gives those over 65 a bonus deduction of $6,000 for tax years 2025 through 2028 when you earn less than an annual income limit. The deduction gets phased out when your modified adjusted gross income exceeds $75,000 as an individual or $150,000 as a couple filing taxes jointly.
I want to mention a confusing email that the Social Security Administration recently sent out. It stated that the OBBB eliminates federal income taxes on benefits for nearly 90% of SS beneficiaries. The email made me do a double-take because, while the new law is beneficial for some seniors, it doesn't change taxes on Social Security benefits directly or permanently.
Note that up to 85% of Social Security retirement income can be subject to tax based on an IRS formula that calculates a retiree's "provisional income." That tax still exists. But there's no denying that the bonus deduction will be beneficial to those over 65 with middle to low incomes.
3. A tax-deferred account for children.
The OBBB allows parents to open a tax-deferred savings account for children under age eight. The federal government will make a one-time contribution of $1,000 if you open the account for a child born from 2025 through 2028. The Department of the Treasury will oversee these accounts, and you can open one as early as January 1, 2026.
You can contribute up to $5,000 a year until the child reaches 18. Distributions from the account used for qualified expenses–such as education, starting a business, or buying a home–get taxed at long-term capital gains rates, which are more favorable than ordinary income rates. However, non-qualified distributions would be subject to income taxes plus a 10% penalty.
After age 18, an account holder can tap 50% of their balance for any qualified expenses. Once they reach 25, they can access the full amount for qualified expenses. However, after age 30, account holders can use their funds for any reason.
This savings account is an excellent way to kick-start savings for young kids and encourage families to contribute more. Everyone who has a child through 2028 should take advantage of this new account.
RELATED: 6 ways to prepare kids for financial freedom
4. No taxes on some tip income.
Starting in 2025 and going through 2028, the OBBB includes a new tax deduction for up to $25,000 in tip income. However, it phases out when you have a modified adjusted gross income over $150,000 as a single or $300,000 as a married couple filing taxes jointly.
5. No taxes on some overtime pay.
Starting in 2025 and going through 2028, the OBBB includes a new tax deduction of $12,500 for overtime pay as a single or $25,000 as a married couple filing taxes jointly.
As with the tip income exclusion, this deduction also phases out when you have a modified adjusted gross income over $150,000 as a single taxpayer or $300,000 as a joint filer.
6. No taxes on some auto loan interest.
From 2025 through 2028, you can deduct up to $10,000 of interest paid on a car loan, even if you don't itemize deductions. It phases out when you have a modified adjusted gross income over $100,000 as a single taxpayer or $200,000 as a joint filer. Due to the relatively low income thresholds, it will benefit those with middle to low incomes.
LISTEN ALSO: Should I take an IRA withdrawal to pay off my car?
7. A bigger child tax credit.
A tax credit is a direct reduction in the amount of tax you owe. The OBBB permanently increases an existing child tax credit from $2,000 to $2,200 per child, starting in 2025. It will get adjusted for inflation annually. While this is a small credit hike, it will be valuable to families with children under 17 who have middle and low incomes.
8. A higher estate tax exemption.
The estate tax is a tax on the property that transfers to others after your death, including everything you own of value, like cash, securities, real estate, trusts, annuities, and business interests.
The new law makes a previously temporary estate tax exemption of $15 million for individuals and $30 million for married couples a permanent rule. It will also include an annual inflation adjustment. So this only affects those with an extremely high net worth.
LISTEN ALSO: Does my inheritance count as taxable income?
To sum up, the massive OBBB makes many tax cuts and reforms of the Tax Cuts and Jobs Act permanent. It introduces a few new tax breaks that will offer some help to those earning middle and low incomes.
The provisions for no tax on tips, overtime, and auto loan interest come with conditions that the IRS has yet to interpret. The law may add layers of complexity to the tax code instead of simplifying it. Those earning high incomes or having a high net worth are likely to benefit the most from provisions like the SALT deduction and estate tax exemption.
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