What's in the One Big Beautiful Bill and How Does it Affect Me?
Over the July 4th holiday weekend, the much-debated “One Big Beautiful Bill” (yes, that’s really what it’s called) was signed into law. While most of the public conversation has centered around its Medicaid cuts and increased funding for border security, this post will focus on the bill’s tax law changes — some of which could impact you directly.
SALT Deduction
In 2017, the (much more boringly named) Tax Cuts and Jobs Act capped the federal deduction for state and local taxes (SALT) at $10,000. Under the OBBB (as we will refer to the new law), that cap is increased to $40,000 — the same whether you're single or married filing jointly. For married couples filing separately, the cap is $20,000.
The new $40,000 SALT cap begins to phase out at incomes over $500,000 and fully phases out at $600,000—though it never drops below the original $10,000 cap. This takes effect for 2025 through 2029 and is set to revert back to $10,000 in 2030.
Pass Through Entities
The Pass-Through Entity Tax (PTET) remains intact under the OBBB. It functions as a workaround to the SALT cap for high-income business owners in high-tax states.
Here’s how it works: if you own a business structured as a pass-through entity (like an S corp, LLC, or partnership), the PTET allows your state income taxes to be paid by the business. These payments become a business expense—reducing federal taxable income—while still being credited on your state return. It’s a valuable strategy, especially for those above the SALT cap.
“If you’ll just answer a question on the screen…”
If you earn tips (and who doesn’t?) as part of your ordinary course of work, you may now qualify for an above-the-line deduction of up to $25,000—meaning you don’t have to itemize deductions to benefit. However, it’s important to note that this deduction does not reduce your Adjusted Gross Income (AGI). I’m going to call this a “between the line” deduction.
The deduction begins to phase out at $150,000 for single filers and $300,000 for joint filers. To qualify, your tips must be:
Reported on your W-2 or Form 4137
Earned in an occupation that “customarily and regularly” receives tips (a formal list is expected from the IRS soon)
Also, this deduction applies to federal income tax only. You’ll still owe FICA and state income taxes on those tips. This deduction is available from 2025 through 2028.
Is Overtime Tax-Free?
Overtime pay is treated similarly to tips under the OBBB. You can deduct up to:
$12,500 for single filers
$25,000 for joint filers
This is also a between-the-line deduction that doesn’t reduce your AGI and doesn’t require itemizing deductions, and it phases out at the same $150K/$300K income thresholds.
Importantly, only the "premium" portion of your overtime qualifies. For example, if your base rate is $20/hour and you’re paid $30/hour for overtime, only the extra $10/hour is eligible.
Again, FICA and state income taxes still apply. This is also available from 2025 through 2028.
Share the love (with your favorite charity)
Let’s get one thing straight: you should give to charity because it matters—not for the tax break. At best, you’re giving a dollar to save somewhere between $0.00 and $0.50. That said, if you’re going to give, you might as well do it in the most tax-efficient way possible.
Under OBBB, things get a bit more nuanced.
If you don’t itemize deductions and give less than $2,000 (joint) or $1,000 (single), you’re in luck. You now qualify for a new between-the-line charitable deduction—similar to the tip and overtime deductions—that doesn’t require itemizing and doesn’t reduce AGI.
However, if you do itemize or give more than those limits… buckle up. A new 0.5% AGI floor means that only charitable contributions exceeding 0.5% of your AGI are deductible. So, if your AGI is $200,000, the first $1,000 of charitable giving gets ignored for tax purposes.
Both of these charitable contributions rules take effect in 2026.
Can I deduct auto loan interest?
The firm answer: Maybe.
The OBBB includes a provision that allows you to deduct auto loan interest, but only if you meet a long list of qualifications:
The deduction is capped at $10,000.
It’s another quirky “between-the-line” deduction — you don’t need to itemize to claim it, but it also doesn’t lower your Adjusted Gross Income.
Income phaseout begins at $100,000 for single filers and $200,000 for married filing jointly.
The car must be:
New
Purchased (not leased)
Bought between 2025 and 2028
And here’s the kicker: final assembly of the car must occur in the U.S.
If you're planning to buy a new car, you probably shouldn’t let this rule determine what car you get, but if you happen to qualify, it could provide some tax savings.
Is Social Security now tax-free?
Not quite.
The OBBB does not eliminate taxes on Social Security income, but it does introduce a new deduction for older adults:
If you're 65 or older, you can deduct $6,000.
If both you and your spouse qualify, you can deduct $12,000 total.
This deduction phases out beginning at:
$75,000 for single filers
$150,000 for married couples filing jointly
So while Social Security remains taxable for many, this new deduction helps reduce the burden for lower- to middle-income retirees. Like other provisions, this is effective for tax years 2025 through 2028.
The bottom line
Like any major tax legislation, the OBBB comes with a labyrinth of new rules and fine print. But what matters most is how these changes affect you and your family. That’s where we come in. Now is a great time to revisit your tax strategy, retirement planning, and charitable giving approach. If you have questions or want to talk through how these updates apply to your situation, reach out—we’re here to help.
