FAQs – Key Tax Changes from the H.R.1, the “One Big Beautiful Bill Act”

The Tax Cuts and Jobs Act from 2017 lowered taxes for many people. It would have expired at the end of the year. Congress passed the OBBBA, which made permanent many of the TCJA provisions and offers new benefits for seniors and high-tax-state residents.

Income Tax Rates

Are tax brackets changing?

No. TCJA reduced the marginal rates for most ordinary income tax brackets to the levels we have been using since 2018. With OBBBA, these will now continue permanently with typical inflation adjustments.

Standard Deduction

Did the standard deduction revert back to lower levels?

No. TCJA doubled the standard deduction making it beneficial for more taxpayers to take the standard deduction rather than itemize deductions, simplifying the tax filing process. With the passage of OBBBA, the higher standard deduction will now continue permanently with a special boost for 2025 and with typical inflation adjustments.

What can I expect next year when I file my 2025 tax return? What about 2026 and beyond?

If your income stays steady over the next several years, you should not see big changes in your tax bill. However, everyone’s circumstances are unique and may vary – work with a tax professional to prepare and file your taxes.

Estate taxes

How does the new law affect federal estate taxes?

The OBBBA makes permanent the higher federal estate tax exemption that would have expired at the end of this year. In 2026, the exemption is $15 million ($30 million with a spouse). The amount will be inflation adjusted.

What about estate taxes at the state level?

There are some states with lower estate tax exemptions than at the federal level, including Massachusetts, Maryland, Illinois, Oregon and Washington. If you are concerned about federal or state estate taxes, work with your financial planner and an attorney to create an estate plan that meets your legacy planning wishes.

SALT

What is SALT?

On your tax return, “SALT” stands for the State and Local Tax deduction. On your federal tax return, this is where you deduct items such as property taxes, state income taxes and sales taxes.

How is the SALT cap changing? 

The TCJA capped the SALT deduction at $10,000. Starting in 2025, the SALT cap increases to $40,000. There is a phasedown back to the $10,000 level for people with modified adjusted gross income between $500k and $600k. The higher SALT cap will expire in 2029, unless Congress passes additional legislation.

How does the higher SALT cap affect me?

The higher SALT cap allows taxpayers to deduct more state and local taxes potentially lowering their tax bill. This is impactful in states with higher income and property taxes.

Social Security

How does the OBBBA affect Social Security payments?

There is no impact to Social Security benefit calculations. If you are receiving Social Security income, the amount will not change except for typical annual cost-of-living adjustments.

Will taxes on Social Security income change?

No. You will continue to pay taxes on up to 85% of your Social Security benefits.

Senior Deduction

What is the new senior deduction?

Taxpayers 65 or older qualify for a new temporary deduction of $6,000 per spouse from 2025 through 2028.

Are there income limitations?

Yes. The senior deduction phases out at these adjusted gross income thresholds:

• Individuals: $75k (complete phaseout at $175k)
• Married filing jointly: $150k (complete phaseout at $250k)

If I’m under age 65 and receiving Social Security payments, do I qualify for the senior deduction?

No – you must be age 65 or older to qualify.

If I’m 65 or older and not receiving Social Security benefits, do I qualify for the senior deduction?

Yes, depending on adjusted gross income. Collecting Social Security benefits does not dictate eligibility, but the taxable portion of your Social Security income could reduce the deduction because of the income phaseout.

Small businesses

What is happening with the qualified business income (QBI) deduction?

The TCJA introduced the QBI deduction of up to 20% for pass-through businesses such as Sole proprietors, Partnerships, and S-Corporations. The QBI deduction is designed to incentivize entrepreneurial activity by providing a special deduction in addition to normal business expenses. Now, the deduction is permanent. The phaseout ranges will increase in 2026. As a small business owner, the widened phaseout ranges may provide more money in your pocket to grow your business.

Will there be any changes to pass-through entity taxes (the SALT cap workaround)?

While there was significant debate on this issue in the legislative process, there were no changes for pass-through businesses in claiming the PTET election.

Affordable Care Act

How are ACA premium tax credits changing?

Several years ago, the American Rescue Plan expanded premium tax credits, which qualified additional enrollees for subsidized ACA health insurance premiums. Those enhanced premium tax credits will expire at the end of 2025. As a result, some ACA enrollees will pay higher health insurance premiums in 2026.

What else?

The OBBBA shortens the annual open enrollment period and eliminates automatic re-enrollment starting with plan year 2027.

Trump Accounts

What are Trump accounts?

Trump accounts are a type of tax-advantaged savings account like a traditional IRA. They will become available for children under age 18.

When are Trump accounts expected to be available?

The OBBBA does not allow Trump account contributions until 12 months after enactment of the bill – at the earliest, July 2026.

How much can I put in a Trump account?

You can contribute up to $5,000/year.  There is a pilot program planned for children born between 2025 and 2028 to receive a one-time deposit of $1,000 from the federal government.

How will Trump accounts be taxed?

The contributions are not tax deductible. Earnings in the account grow tax-deferred. Qualified earnings withdrawals are taxed as ordinary income like traditional IRA income. Withdrawals are generally prohibited before age 18.

Education

How were 529 accounts affected?

Starting in 2026, the OBBBA increased the $10,000 federal limit for K-12 education expenses to $20,000. It also immediately expanded the qualified expenses beyond tuition to include tutoring, textbooks and other educational materials.

What are the impacts to student loans?

The OBBBA eliminated a loan program for graduate students and consolidated repayment plan options for borrowers. Changes start taking effect in July 2026 - students starting or returning to college this fall won’t be immediately affected.

Miscellaneous

What are some of the other new provisions in OBBBA?

• Auto loan interest deduction: From 2025 through 2028 auto loan interest is deductible up to $10,000. There is a phaseout for modified adjusted income over $100k single and $200k filing jointly. The vehicle needs to have final assembly in the U.S.
• No tax on tips and overtime: From 2025 through 2028, tip and overtime income up to $25,000 is deductible subject to an income phaseout.
• Clean energy incentives: Tax credits for clean energy are being phased out from 2025-2029.
  • The clean vehicle tax credit will no longer be available for cars acquired after 9/30/2025
  • The new energy-efficient home credit will no longer be available for properties acquired after 6/30/2026.

The information provided is for educational purposes only and does not constitute investment, legal or tax advice; or an endorsement of any third party or such third party's views. The information contained herein has been obtained from sources we believe to be reliable but is not guaranteed as to its accuracy or completeness. Whenever there are hyperlinks to third-party content, this information is intended to provide additional perspective and should not be construed as an endorsement of any services, products, guidance, individuals or points of view outside Edelman Financial Engines. Please contact us for more complete information based on your personal circumstances and to obtain personal individual investment advice.