President Trump signed the federal budget reconciliation act, known as the One Big Beautiful Bill (OBBB), into law on July 4, 2025, marking the most significant fiscal policy shift in recent American history. This comprehensive legislation affects millions of taxpayers, businesses, and benefit recipients across the United States. Understanding these sweeping changes will help you make informed financial decisions and prepare for the economic landscape ahead.
The bill represents a massive overhaul of America’s tax code and federal spending priorities. Congress designed this legislation to permanently extend the 2017 Tax Cuts and Jobs Act while introducing new temporary deductions for specific worker groups. The bill simultaneously cuts social safety net programs, such as Medicaid and SNAP, while increasing defense spending and funding for border security. Financial experts estimate that the OBBB will add between $2.8 trillion and $3.4 trillion to the national debt over the next decade, according to preliminary forecasts from the Congressional Budget Office (CBO).
Who Gets Impacted by the OBBB
Taxpayers
Most American taxpayers will experience reduced federal income tax liability under the OBBB. The legislation makes individual tax rate reductions permanent and permanently increases standard deductions effective as of January 1, 2025. Single filers and Married Filing Separately (MFS) can receive a standard deduction of $15,750, Head of Household (HoH) can claim $23,625, while joint filers claim $31,500, and will be indexed for inflation after 2025.
Hourly Wage-Earners and Service Workers
Workers who earn tips or overtime pay gain substantial temporary tax benefits through 2028. The OBBB allows tipped workers earning under $150,000 (single) or $300,000 (joint) to deduct up to $25,000 in tip income. Overtime workers within the same income limits can deduct up to $12,500 (single) and $25,000 for Married Filing Jointly (MFJ), with a similar income limitation as tipped workers. These amounts will be indexed for inflation beginning January 1, 2026, and are effective for taxable years beginning after December 31, 2024, and before January 1, 2029.
Seniors
Americans aged 65 and older will receive a temporary $6,000 deduction through 2028. The senior deduction phases out at incomes exceeding $150,000 for MFJ and $75,000 for all others.
Small and Medium Businesses
The OBBB provides significant tax relief to business owners through multiple provisions. The legislation makes the 20% Section 199A qualified business income deduction permanent. Small businesses gain access to 100% first-year bonus depreciation permanently, effective for property acquired on or after January 1, 2025. The Section 179 deduction cap increases to $2.5 million, and increases the phaseout threshold amount to $4 million. The OBBB also allows for immediate expensing of R&E (Research and Experimental) from January 1, 2025. Small businesses (with gross receipts under $31 million) can retroactively apply this change to the 2022, 2023, and 2024 tax years through amended returns. This also allows businesses to accelerate any remaining Section 174 deductions.
Families with Children
Parents benefit from a permanent increase in the Child Tax Credit from $2,000 to $2,200 per child, indexed for inflation, with a $1,700 refundable credit that adjusts for inflation. The OBBB also introduces Trump Accounts, allowing parents to contribute up to $5,000 annually to tax-deferred accounts for their children, with tax-free growth until withdrawal at age 18 or older.
Additionally, the federal government will contribute a one-time credit of $1,000 to accounts for children born between 2025 and 2028 who are U.S. citizens.
High-Income Earners
Wealthy taxpayers continue benefiting from lower individual tax rates and enhanced estate tax exemptions. The OBBB permanently increases the estate tax exemption threshold, exempting many more families from federal estate taxes.
Homeowners in High-Tax States
Property owners in states with high local taxes gain temporary relief through increased SALT deduction caps. The OBBB raises the State and Local Tax deduction limit from $10,000 to $40,000 for taxpayers with modified adjusted gross income under $500,000 through 2029.
Additionally, there are no SALT limitations for pass-through entities.
Lower-Income Individuals and Families
Americans relying on Medicaid or SNAP face significant benefit reductions under the OBBB. The legislation imposes a 12% cut to Medicaid spending over ten years while expanding work requirements for recipients. The bill imposes 80 hours per month of work or qualifying activities for recipients aged 19-64. SNAP recipients will see $186 billion in cuts over ten years, plus stricter work requirements affecting non-disabled adults aged 18-54, and now include 55-64 year-olds, veterans, homeless individuals, and former foster youth.
Defense Industry
Defense contractors and military suppliers are likely to benefit substantially from increased funding allocations. The OBBB significantly boosts defense spending, including funding for a “Golden Dome” missile defense system and expanded shipbuilding programs.
Core Components of the Bill
Tax Policy Overhaul
The OBBB makes most individual tax cuts from the 2017 Tax Cuts and Jobs Act permanent, ensuring lower rates and reformed brackets continue indefinitely. The legislation permanently boosts standard deductions and introduces multiple temporary deductions targeting specific worker groups.
- Miscellaneous Itemized Deductions: The OBBB permanently eliminates miscellaneous itemized deductions, except for those related to educator expenses.
- Form 1099 Reporting: The OBBB increases the Form 1099 reporting threshold from $600 to $2,000 for non-employee compensation (Form 1099-NEC/Misc) and increases the reporting threshold for digital payment platforms from $600 to $20,000 or more than 200 transactions.
- Alternative Minimum Tax (AMT): The legislation permanently makes the higher exemption and phase-out threshold permanent, but increases the phase-out rate to 50%.
- Section 529 Education Plans: The legislation expands the use of Section 529 plans to include more K-12 private school tuition, homeschooling expenses, and postsecondary credentialing expenses. It also extends to include CPA credential programs, including exam expenses, while maintaining tax-free growth and withdrawal benefits.
- Charitable Contributions: The OBBB reinstates the above-the-line charitable deduction for non-itemizers, allowing up to $1,000 for single filers ($2,000 for joint filers) in cash contributions to qualified organizations. This deduction is made permanent after January 1, 2026. The Bill also limits the charitable deduction for taxpayers who itemize by providing a deduction to the extent they exceed 0.5% of the taxpayer’s contribution base.
- Estate and Gift Tax: The OBBB permanently increases the estate and gift tax exemption to approximately $15 million, indexed for inflation, and makes the higher exemption permanent.
- Casualty and Theft Loss: Personal casualty and theft loss deductions are now made permanent for all qualifying federally declared disasters, and the provision is expanded to include certain state-declared disasters.
- Energy Credits: The OBBB terminates a large number of clean energy tax incentives by the end of 2027.
- Auto Loan Interest Deductions: The OBBB creates a temporary deduction for auto loan interest up to $10,000 annually on U.S.-assembled vehicles purchased between 2025 and 2028, phasing out for higher-income taxpayers to encourage domestic automotive purchases.
Business Tax Incentives
Small business owners gain enhanced flexibility for deducting or amortizing domestic research and development (R&D) costs, allowing for immediate deductions. The OBBB reinstates 100% first-year bonus depreciation permanently while increasing Section 179 deduction caps to $2.5 million
- Section 163(j) Interest Limitation: The legislation reinstates EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) calculations without expiration, thereby increasing the base for interest expense deductions.
- Section 461(i) Excess Business Loss (EBL): The OBBB makes EBL limitations permanent and retains the existing treatment of EBL carryforwards.
- Section 1202 Qualified Small Business Stock: The legislation expands the qualified small business stock exclusion, increasing the gain exclusion from $50 million to $75 million per taxpayer while broadening eligible business definitions and providing a tiered exclusion holding period alternative, starting as early as three years.
- Corporate Charitable Deductions: The OBBB modifies corporate charitable contribution limits by adding a 1% floor to the existing 10% ceiling, meaning deductions only apply to contributions exceeding 1% of taxable income while maintaining the overall cap.
- Employee Retention Credit (ERC): The legislation prohibits the payment of Q3 2021 and Q4 2021 claims as of Jan. 31, 2024.
International Tax Modifications
The legislation modifies foreign tax credits, Global Intangible Low-Taxed Income rules, and Base Erosion and Anti-Abuse Tax provisions to favor U.S. companies. The OBBB imposes a 1% excise tax on remittances while making international tax rules more business-friendly.
Defense and Border Security Spending
Congress allocated substantial funds for immigration enforcement, including increased funding for ICE and Customs and Border Protection. The OBBB provides resources for completing the border wall and implementing enhanced security measures.
Social Program Restructuring
Medicaid faces a 12% spending cut over ten years, with the implementation of expanded work requirements transferring costs to states. The OBBB reduces SNAP funding by $186 billion over ten years while imposing stricter work requirements on more recipient categories.
Energy Policy Shifts
The legislation phases out clean energy tax credits from the Inflation Reduction Act while promoting the development of fossil fuels. The OBBB unlocks oil and gas development on federal lands while reducing incentives for renewable energy.
Debt Ceiling Adjustment
Congress raised the U.S. debt ceiling by $5 trillion to accommodate the fiscal changes. This adjustment provides the Treasury Department with flexibility to manage government operations while implementing the new spending priorities.
What the Bill Means for America
Economic Philosophy Shift
The OBBB represents a fundamental shift toward supply-side economics, prioritizing tax cuts and deregulation to stimulate growth. This approach assumes that reducing tax burdens on individuals and businesses will generate economic activity that offsets revenue losses.
Individual Tax Impact
Most Americans will see a reduction in their federal income tax liability through permanent rate reductions and increased standard deductions. However, those relying on government assistance programs may face increased out-of-pocket costs or coverage losses as benefit programs are reduced or eliminated.
Business Growth Incentives
The legislation creates strong incentives for business investment, innovation, and job creation within the United States. Enhanced depreciation rules, R&D benefits, and qualified business income deductions aim to boost domestic economic activity.
Federal Debt Implications
The Congressional Budget Office projects that the OBBB will add $2.8 trillion to $3.4 trillion to the national debt over the next decade. This substantial increase raises concerns about long-term fiscal sustainability and potential implications for inflation and interest rates.
Healthcare System Pressures
Medicaid cuts and rollbacks of Medicare drug price negotiations create financial pressures throughout the healthcare system. Rural hospitals face particular vulnerability as patient coverage levels decline, and reimbursement rates potentially decrease.
What You Should Do About the OBBB
Review Your Tax Situation Immediately
Contact Windes to understand how permanent tax cuts, temporary deductions, and SALT cap changes affect your specific situation. Calculate your potential 2025 tax obligations or savings since many provisions take effect this year.
Evaluate Business Investment Strategies
Business owners should consider accelerating equipment purchases to take advantage of enhanced permanent bonus depreciation and increased Section 179 expensing limits. Review R&D investment plans to maximize the revised tax benefits under the OBBB.
Reassess Retirement and Investment Approaches
Changes in overall tax rates may influence decisions about pre-tax versus Roth contributions to retirement accounts. Consider the long-term economic implications of increased national debt on inflation, interest rates, and market stability when making investment decisions.
Plan for Healthcare Coverage Changes
If you rely on Medicaid or SNAP, stay informed about state-level implementations of new work requirements and changes to eligibility. Review health insurance options and assess your financial preparedness for potential increases in healthcare expenses.
Update Estate Planning Documents
The permanent increase in estate tax exemption thresholds means many more families escape federal estate taxes. Review your estate plan with legal and financial advisors to ensure it reflects new thresholds and your current wishes.
Monitor Social Safety Net Changes
Americans who rely on government assistance programs should contact social service organizations for guidance on navigating new requirements. Stay informed about specific state implementations of federal program changes.
Consider Auto Loan Timing
The OBBB offers temporary deductions for auto loan interest on U.S.-assembled cars purchased between 2025 and 2028. If you plan to purchase a vehicle, timing can impact your tax benefits.
Prepare for Economic Volatility
The substantial debt increases and fundamental policy shifts may create economic uncertainty. Maintain emergency funds and consider diversifying investment portfolios to weather potential market volatility.
The OBBB creates both opportunities and challenges for Americans across all income levels and industries. Success in navigating these changes requires proactive planning, professional guidance, and continuous monitoring of implementation details as they emerge from federal and state agencies.
Windes Can Help
Windes provides comprehensive tax planning and advisory services to help individuals, businesses, and nonprofits navigate the complex provisions of the OBBB. Our experienced team can analyze how these sweeping changes affect your specific situation, develop customized strategies to maximize tax benefits, and ensure compliance with new regulations. Whether you need guidance on business tax incentives, estate planning adjustments, nonprofit compliance requirements, or individual tax optimization, Windes offers tailored solutions to help you effectively adapt to America’s new fiscal landscape. Connect with Windes today.