Key takeaways

• The new law extends 2017 tax cuts and adds new deductions for tips, overtime, seniors, and parents through changes to the child tax credit and SALT cap.
• Medicaid enrollees may face new work and activity requirements, and changes to funding could affect access for more than 70 million people.

• 529 plans, HSAs, and a new Trump Account are reshaping how Americans can save for education, health expenses, and retirement starting in 2026.

   

Call it sweeping, sprawling — or simply big and beautiful. The nearly 900-page budget reconciliation and tax reform package, formally known as the One Big Beautiful Bill Act of 2025, recently passed by both the Senate and the House, was signed into law on July 4.^1,2,3

The legislation reshapes the tax code, adjusts federal health spending, and retools college savings plans. With provisions ranging from new deductions for tips and overtime to stricter Medicaid work requirements and revamped 529 rules, the law touches nearly every taxpayer and household. Some will benefit. Others could see new hurdles. Here's what matters, what’s changing, and how it could hit the bottom line.

Tax cuts

Existing cuts. The law makes permanent the individual rate reductions, higher standard deduction, alternative minimum tax, and increased exemption for estate and gift taxes from the 2017 Tax Cuts and Jobs Act.⁴

New tips deduction. A new deduction allows workers to deduct up to $25,000 in tip income annually through 2028, provided their modified adjusted gross income (AGI) does not exceed $150,000 ($300,000 for joint filers).⁵ The deduction phases out by $100 for every $1,000 over the AGI threshold.⁶

Overtime wages deduction. Similarly, certain overtime wages up to $12,500 ($25,000 for joint filers) are deductible through 2028, with the same AGI phase-out structure as the tips deduction.⁷

SALT cap raised. The cap on state and local tax (SALT) deductions increases to $40,000 and will revert back to the previous $10,000 cap after five years. The limit is subject to an income phase out beginning at $500,000.⁸

Deduction for seniors. Along with making the higher standard deduction permanent, the bill provides an additional $6,000 standard deduction for individuals age 65 and over who earn less than $75,000 a year ($150,000 for couples), and runs through tax year 2028.⁹

Child tax credit. The existing maximum child tax credit of $2,000 was set to sunset at the end of this year. The law permanently increases it to $2,200 in 2025, and it will be indexed for inflation beginning in 2026.¹⁰

Car loan interest. It allows a deduction of up to $10,000 of interest on loans for passenger cars.¹¹

Health coverage

Medicaid restrictions. With about 71.4 million people enrolled in Medicaid, funding reductions in the legislation could affect individuals who receive coverage.¹² It includes a work requirement in which some enrollees will need to provide documentation that they are working, studying or attending school for 80 hours monthly, volunteering, or qualify for an exemption.¹³

Changes to Health Savings Accounts (HSAs). Previously, individuals could contribute to an HSA only if their sole health coverage was through a high-deductible health plan (HDHP). The bill expands who can contribute by treating “bronze level” and catastrophic plans purchased under the Affordable Care Act as HDHPs.¹⁴ It also allows individuals participating in primary care arrangements to contribute, with limitations.

Education

The law includes several changes to 529 plans and how they can be used:¹⁵  

• An increase in the limit for qualified tuition expenses for K–12 to $20,000 from $10,000

• Expanded non-tuition qualified expenses for K-12 to include costs for books, online learning materials, and tutoring fees

The bill will also broaden qualified post-secondary educational expenses to incorporate:

• Tuition, fees, books, supplies, and equipment for credentialed programs

• Testing fees to earn a post-secondary credential

• Fees for continuing education requirements

Trump accounts

The law introduces tax-deferred savings options for individuals under age 18, including:¹⁶

• A pilot program for American babies born Jan. 1, 2025 through Dec. 31, 2028, giving them a government-granted $1,000 nest egg in an index fund, and the ability for parents and others to contribute up to $5,000 annually.
• Employers may contribute up to $2,500 per year for employees under 18 or their dependents.
• States, political subdivisions, or tax-exempt 501(c)(3) organizations may also contribute, with these contributions not counting toward the $5,000 annual limit.
• Funds must be invested in low-cost index funds tracking U.S. equities, with expense ratios not exceeding 0.1%.
• Rollovers to ABLE accounts or another Trump Account are permitted if the entire original Trump Account balance is transferred in the year the beneficiary turns 17.
• No other distributions are allowed before the beneficiary reaches age 18, at which point the account converts to a traditional IRA.

ABLE accounts

The bill expands support for ABLE accounts — tax-advantaged savings accounts for individuals with disabilities — by increasing contribution limits through a revised inflation adjustment, and making several provisions from the 2017 tax law permanent.¹⁷ These include allowing working beneficiaries to contribute more based on income, eligibility for the Saver’s Credit, and tax-free rollovers from 529 plans.

Homeland security and immigration

The law allocates upwards of $46.5 billion to cover construction expenses for a border wall.¹⁸ It also includes funding to expand detention capacity for immigrants in custody and fees for foreign nationals seeking asylum.

Charitable giving

Previously, taxpayers could take itemized deductions for charitable contributions. The new law gives people who take the standard deduction the opportunity to deduct up to $1,000 for single filers or $2,000 for joint filers.¹⁹