A Big Beautiful Article

Today let’s chat about Public Law 119‑21 – you may know this as the One Big Beautiful Bill Act. The jazzier name was dropped because of decorum and precedent. Congressional rules and norms generally discourage overly promotional or partisan language in official bill titles, especially once a bill moves toward passage.

Whether you think it is beautiful or not (few would say it wasn’t big), it applies to you in one way or another.

There’s no shortage of takes on the new law. We almost skipped adding another. Then we saw a WhiteHouse.gov list claiming “No Tax on Social Security” and “No Tax on Tips.” That deserved a closer look.

One ground rule up front: WhiteHouse.gov is not a legal authority, regardless of the administration. IRS regulations and federal statutes are. You can’t cite a White House web page in an audit. So we went to the source.

If you want to read it yourself, here’s the PDF (trigger warning: 1,116 pages). If not, we’ll stick to what most people will actually feel, organized by how it may apply to you.

One quick planning note as you read through this: Last month, we highlighted a common mistake with Roth Conversions – converting too much at once. That’s because the amount you convert is treated as ordinary income, which doesn’t just bump up your tax bill. It can also quietly push you over key income thresholds, causing you to lose access to valuable deductions like the new Senior deduction, the expanded SALT deduction, and others outlined below. This is one of those cases where timing and precision matter more than ever.

The Standard Deduction:

• Raises the base standard deduction to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly. These amounts will be adjusted annually for inflation.

Seniors & Social Security:

• Adds a temporary personal exemption deduction of up to $6,000 for individuals age 65 or older, available from 2025 through 2028, subject to income limits and ID requirements.
  Note: The bill does not change how Social Security benefits are taxed.

SALT & Mortgage Interest:

• The SALT deduction cap increases to $40,000 in 2025 ($20,000 for married filing separately). It rises to $40,400 in 2026 ($20,200 if married filing separately), then grows 1% annually through 2029. In 2030, it reverts to $10,000 ($5,000 for married filing separately). In addition, the deductible amount is reduced, though not below the base cap, by 30% of the income exceeding a threshold: $500,000 in 2025 ($250,000 for married filing separately), rising to $505,000 in 2026 ($252,500) and increasing 1% per year through 2029.
• Mortgage Interest Rules Made Permanent: Confirms the $750K cap on acquisition debt is now permanent. Loans under the old $1M cap are grandfathered. Private mortgage insurance (PMI) is again deductible as mortgage interest.

“No Tax on Tips” and “No Tax on Overtime” Are Deductions, Not Exemptions:

• Creates a new above-the-line deduction (through 2028) of up to $25,000 for qualified tip income, phasing out once modified adjusted gross income exceeds $150,000 ($300,000 for joint filers).
•  Adds a separate above-the-line deduction (also through 2028) of up to $12,500 ($25,000 for joint filers) for qualified overtime pay, with the same income phaseout thresholds.
• To claim either deduction, filers must have a work-eligible Social Security number and, if married, must file jointly.

If You Receive Money from Third-Party Platforms

• Raises the threshold for when platforms like Venmo, PayPal, Etsy, or ticket resale apps must issue a 1099-K tax form.
•  Previous law (2021 rule): 1099-K if you received over $600, even from one transaction. This was delayed and never fully enforced.
•  2025 rule (before this change): 1099-K if you received over $2,500, regardless of transaction count.
• New rule (in this bill): 1099-K only if you receive over $20,000 and have more than 200 transactions.
•  This effectively returns to the pre-2021 standard, easing the burden for hobbyists, casual sellers, and people just splitting bills or reselling the occasional ticket.

Auto Loan Interest Deduction:

• Creates a new tax deduction of up to $10,000 for interest paid on loans taken out between 2025 and 2028 to purchase a personal-use passenger vehicle, subject to specific requirements. The deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).

Families, Children, and Tax Breaks

• Raises the child tax credit to $2,200 per child starting in 2025, indexed to inflation from 2026.
•  Makes permanent:
   – Phaseout thresholds ($200K single / $400K joint)
   – $500 nonrefundable credit for other dependents
   – Refundable portion for eligible filers
• Tightens ID rules: Starting in 2025, filers must provide a work-eligible Social Security number for themselves, their spouse (if filing jointly), and each child.
•  Makes up to $5,000 of the adoption tax credit refundable and indexed to inflation after 2025. (Refundable portion can’t be carried forward.)
• Increases the dependent care exclusion to $7,500 ($3,750 if married filing separately) from employer-provided assistance.
•  Increases the non-refundable dependent care credit (no new dollar amount specified here).
• Adds a $1,700 tax credit for donations to K–12 scholarship organizations.
• Employer-paid education (up to $5,250/year) remains tax-free, with indexing after 2026.

Education Savings & Scholarship Accounts

• Creates the Trump Account:
   – A traditional IRA-style account for minors under age 18
   – Up to $5,000/year can be contributed (indexed)
   – Withdrawals allowed starting at age 18
   – A $1,000 federal contribution applies to children born between Jan 1, 2025 and Dec 31, 2028, if eligibility rules are met
•  Expands 529 Plan usage:
   – Covers more K–12 and homeschool costs
   – Annual limit increased to $20,000 per student
   – Now includes career training and certificate programs
•  Higher excise tax on large college endowments: Now set at 1.4%, 4%, or 8% depending on size and student aid

Student Loans & Higher Ed Aid

• FAFSA Fixes: Family-owned farms, small businesses (under 100 employees), and fishing operations are no longer counted as assets—restoring pre-2024 rules.
•  Student Loan Limits (effective July 1, 2026):
   – Grad PLUS loans eliminated
   – Lifetime borrowing caps: $100K (grad), $200K (professional), $257.5K (total, excluding Parent PLUS)
   – Parent PLUS capped at $20K/year and $65K per student
   – Current students can exceed these limits for 3 more years
   – Part-time students receive prorated loan amounts
   – Schools may impose lower limits
•  Repayment Changes:
   – New borrowers (after July 1, 2026) choose between standard or Repayment Assistance Plan (RAP)
   – Other income-driven plans (SAVE, PAYE, ICR) phased out by July 1, 2028
   – For loans issued after July 1, 2027: deferments for hardship/unemployment eliminated; max 9 months of forbearance every 24 months
   – Borrowers can now rehabilitate a defaulted loan twice; $10 minimum payments
   – RAP payments count toward Public Service Loan Forgiveness
• Pell Grant Changes:
   – Foreign income now counted toward eligibility
   – High Student Aid Index (>2x max Pell) disqualifies student
   – New Workforce Pell Grant for 150–599 hour job training programs
   – Additional $10.5 billion in Pell funding for 2026
   – Students fully funded by nonfederal aid aren’t Pell-eligible
•  Student Loan Forgiveness: Excludes forgiven amounts from income if due to death or disability but only if the student had a work-eligible SSN

Businesses:

• 100% bonus depreciation made permanent – Allows full write-off of equipment in the year it’s purchased.
•  R&D costs fully deductible again – Immediate deduction restored for U.S.-based research spending.
• Paid family/medical leave credit made permanent – Employers can claim a 25% credit for offering paid leave.
•  Section 179 limit increased – Small businesses can now expense up to $2.5 million in purchases.
•  Interest deduction limits eased – Especially beneficial for capital-intensive industries.
• Child care tax credit expanded – Credit for employer-provided child care rises to 40% (or 50% for eligible small businesses). Maximum credit increases to $500,000 (or $600,000 for eligible small businesses), indexed for inflation.
•  Qualified Business Income (QBI) deduction extended and expanded –
   – Phase-in thresholds rise to $75,000 (single) and $150,000 (joint)
   – Guarantees a minimum $400 deduction for qualifying taxpayers

For High Earners and Big Givers

• Raises the base exemption for estate, gift, and generation-skipping transfer taxes to $15 million (from $5 million), starting after 2025 and indexed for inflation.
• Makes the higher alternative minimum tax (AMT) exemption amounts permanent, but lowers the income threshold where the phaseout begins to $500,000 (or $1 million for joint filers), starting in 2026.
•  Increases the AMT phaseout rate to 50% (up from 25%) for income above those thresholds. (For reference, 2025 inflation-adjusted thresholds are $626,350 and $1,252,700 for joint filers.)

Charitable Giving for Givers of All Sizes

• Starting in 2026, you can only deduct charitable contributions that exceed 0.5% of your adjusted gross income (AGI).
•  This replaces the prior rule that let itemizers deduct every dollar donated, with no AGI floor.
• Applies to cash donations to qualified public charities. Contributions to donor-advised funds or private foundations still follow separate rules.

Health Savings Accounts (HSAs):

• Expanded HSA Eligibility: Individuals with the following coverage types can now make tax-deductible HSA contributions: Bronze-level or catastrophic ACA exchange plans; Direct primary care arrangements (up to $150/month or $300 for family); HDHPs with first-dollar telehealth benefits

ABLE Accounts

• Increased Contributions: Permanently allows ABLE account beneficiaries to make additional contributions beyond the standard limit, with certain restrictions.
• Higher Limit Growth: Adds an extra year to the annual cost-of-living adjustment, increasing the total contribution limit.
• Tax Credit Expansion: Makes the ABLE saver’s tax credit permanent, raises the max credit from $2,000 to $2,100.
• 529 Plan Rollovers: Makes permanent the ability to roll over funds from a 529 plan to an ABLE account, within existing limits.

Medicaid:

• Redetermination frequency increases – Starting in Q1 2027, states must recheck eligibility every six months for adults enrolled under Medicaid expansion (i.e., under age 65 with income up to 138% of the federal poverty level).
• Work/activity requirements – The bill requires 80 hours monthly of work/community service/education for Medicaid expansion adults, with implementation beginning “not later than the first quarter after December 31, 2026.
• Home equity cap for long-term care – As of 2028, states must cap allowable home equity at $1 million (no inflation adjustment) when determining eligibility for nursing home or long-term care services. Exception: properties classified as agricultural.

What Do You Do With All This?

Probably nothing today. Most of these changes kick in starting in 2025. Some won’t be felt until tax filing in 2026. And a few – like student loan caps or Medicaid eligibility checks -won’t show up in daily life for a while.

But here’s what is worth doing now:

• If you’re making financial decisions tied to income, deductions, education, or long-term care, double-check the new rules – they may shift what’s worth prioritizing.
• If you give to charity, plan to itemize, or claim tip income, the math just changed.
• If you’re a business owner or contractor, there are real opportunities here but only if you’re paying attention.

We don’t have to memorize every line but paying attention now means we’re not making assumptions later. This wasn’t a small or symbolic bill. It quietly reshapes how a lot of people are taxed, helped, or excluded. Ignore the slogans. The fine print is what actually hits your bottom line.

Disclaimer:
This summary is for informational purposes only and does not constitute tax, legal, or financial advice. The law is subject to change, and even well-intentioned interpretations can miss nuance. Always consult a qualified tax professional before making decisions based on legislation especially when the fine print spans over a thousand pages.