A sweeping new piece of legislation known as the “Big Beautiful Bill” is packed with tax breaks, expanded deductions, and changes to key government programs. This bill could dramatically alter the financial landscape for millions of Americans. Here’s what you need to know.
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Existing Tax Rates Become Permanent
The lower tax rates from the Tax Cuts and Jobs Act of 2017 were set to expire in 2025. The “Big Beautiful Bill” will make those tax breaks permanent.
Here are the 2025 tax brackets.
No Taxes on Tips or Overtime Pay
Taxpayers who receive tips will be able to deduct up to $25,000 per year in tips from their taxable income, provided they earn under $150,000 ($300,000 on joint returns). A “qualified tip” is money paid voluntarily by the payor; therefore, mandatory service charges do not qualify. Credit card tips are eligible, but the value of gifts are not. The taxpayer must be in an occupation that customarily and regularly receives tips.
For overtime, the deduction is capped at $12,500 ($25,000 for joint returns), provided they earn under $150,000 ($300,000 for joint returns).
Deduct Auto Loan Interest
Those with car loans can write off up to $10,000 in interest paid to qualifying car loans for the next three years, and you do not have to itemize to claim the deduction. A key factor, however, is that the car must be new and assembled in the U.S.
Here's the difference between a tax credit and a tax deduction.
$6,000 Deduction for Older Adults
The Big Beautiful Bill calls for a $6,000 deduction for those 65 and older who earn $75,000 or less ($150,000 joint). This would effectively eliminate taxes on Social Security for 88% of seniors.
Cap on State and Local Deductions Increases
When you pay state and local taxes, you can deduct a portion of those funds from your federal taxable income. The cap on this amount is currently $10,000 but Trump's bill increases that amount to $40,000 for the next five years.
Medicaid Work Requirement
Medicaid recipients in 40 states and D.C. will have to either work, volunteer, or go to school for at least 80 hours per month to continue to receive benefits. Recipients can receive exceptions, such as being disabled and having young children.
Some recipients may also see a $35 charge when seeing the doctor if their income is between 100% and 138% of the federal poverty line (between $15,650 and $21,597).
ACA Reporting Requirements
Those who receive their health insurance through the ACA marketplace will now have to update their income and other details every year, rather than being automatically re-enrolled.
Boost Child Tax Credit to $2,200
The current child tax credit is $2,000, but that was set to expire in 2025, reverting back to $1,000. The bill permanently raises this credit to $2,200.
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