IRS Publication 529 – The One Big Beautiful Bill Act (OBBBA), also known as the Big Beautiful Bill or Working Families Tax Cut, is a major U.S. federal law signed by President Donald Trump on July 4, 2025, as Public Law 119-21. It represents the core of the second-term agenda, enacted through budget reconciliation (H.R. 1 in the 119th Congress). The legislation makes sweeping changes to taxes, spending, and related policies, most notably by making many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent—preventing their scheduled expiration after 2025.
This law affects individuals, families, workers, businesses, and various government programs. It includes tax cuts, new deductions, spending increases (e.g., on defense and border security), and offsets like spending reductions in other areas. Estimates from sources like the Congressional Budget Office (CBO) indicate it adds trillions to the federal debt over the next decade (e.g., around $4.1 trillion conventionally through 2034, including interest), though economic growth from pro-business provisions may offset some costs.
Key Tax Provisions for Individuals and Workers
OBBBA focuses on extending and expanding TCJA benefits while adding targeted relief.
- Permanent Extension of TCJA Individual Tax Changes
The core TCJA reforms—lower individual income tax rates (top rate stays at 37% instead of reverting to 39.6%), doubled standard deduction (made permanent and slightly increased), elimination of personal exemptions, and modified itemized deductions—are now permanent. This avoids a major tax increase that would have hit many households in 2026. - No Tax on Tips
A deduction for qualified tips reduces federal income tax liability (tips remain subject to payroll taxes like Social Security and Medicare). It benefits many service workers, though reporting is still required. This is retroactive for some 2025 earnings in certain cases. - No Tax on Overtime Pay
Overtime wages receive similar income tax relief for eligible workers. - Auto Loan Interest Deduction
A new deduction for interest on certain auto loans. - Senior Deduction (“Senior Bonus”)
An additional standard deduction of up to $6,000 for those 65 and older, available through 2028. - Child Tax Credit (CTC) Increase
Raised to $2,200 per qualifying child (from $2,000), with phaseouts and inflation indexing starting in 2026. - State and Local Tax (SALT) Deduction Cap
Temporarily raised to $40,000 (for incomes under $500,000), with annual 1% increases, before reverting to $10,000 after five years (around 2030). - Estate and Gift Tax Exemption
Permanently increased to $15 million per person (indexed for inflation starting 2026), up from prior levels. - Other Temporary Relief
New above-the-line deductions and credits for certain workers; some expire in 2028 (e.g., tips, overtime, auto loans).
Business and Investment Provisions
- 100% Bonus Depreciation
Made permanent for qualified property placed in service after January 19, 2025 (full first-year expensing for equipment and certain assets). - Research & Development (R&D) Expensing
Domestic R&D costs fully deductible immediately (permanent). - Qualified Business Income Deduction
Increased from 20% to 23% for pass-through businesses (e.g., small businesses, entrepreneurs). - Other Business Breaks
Expensing for certain real property and adjustments to business interest deductions.
Other Major Changes
- Spending Increases
$150 billion each for defense and border enforcement/deportations; boosted farm subsidies and rural investments. - Health and Social Programs
Reforms to Medicaid (e.g., work requirements, eligibility changes), cuts to some energy credits from the Inflation Reduction Act, and limits on coverage for certain noncitizens. CBO estimates significant coverage losses (millions over time). - Education and Student Aid
Changes to federal loans (e.g., Parent PLUS limits), Pell Grants, and “Trump Accounts” (tax-deferred savings for children, with government seed contributions starting 2026). - Charitable Deductions
New above-the-line deduction for non-itemizers (up to $1,000 single/$2,000 joint for cash donations, permanent from 2026 in some forms).
Impacts and Considerations (as of 2026)
For tax year 2025 (filed in 2026), many changes apply immediately or retroactively. Average tax cuts vary by state and income—higher in places like Wyoming or Washington, lower in states like West Virginia. While it provides broad relief (e.g., preventing TCJA expiration), critics note added complexity from carveouts, deficit increases, and cuts to programs affecting lower-income groups.
For the most accurate details, check official sources like IRS.gov (search for “One Big Beautiful Bill provisions”) or Congress.gov (H.R. 1 text). Tax rules can be complex—consult a tax professional for personal advice, especially with inflation adjustments and phaseouts.