One Big Beautiful Bill

Permanent 2017 Tax Cuts and Jobs Act (TCJA) Rates and Brackets

• The brackets initially instituted by the TCJA (including a maximum rate of 37% for the highest earners) are made permanent and will no longer sunset after 2025.

• The bottom three brackets (10%, 12% and 22%) will have accelerated inflation adjustments.

Bigger, Permanent Standard Deduction

• 2025 standard deductions are locked in at the following amounts, indexing annually each year after.

  • $31,500 married filing jointly

  • $23,625 head of household

  • $15,750 single & married filing separately

Changes to Child Tax Credit & Credit for Other Dependents

• The Child Tax Credit (CTC) amount is increased to $2,200 per qualifying child beginning in 2026, indexing annually each year after.

• The $500 credit for other dependents (dependents who do not qualify for the CTC) is made permanent and is not indexed for inflation.

• Credits phase out at $400,000 Modified Adjusted Gross Income (MAGI) for joint filers and $200,000 for other filers.

State & Local Tax Limitations (SALT)

• Retroactive increase to the individual SALT deduction cap from $10,000 to $40,000 for tax year 2025.

  • Maximum deduction increases to $40,400 in 2026, followed by an additional 1% in 2027, 2028, and 2029.

  • SALT deduction cap will revert back to $10,000 beginning in 2030.

• Increased deduction phases out for taxpayers with MAGI greater than $500,000 in 2025. The phaseout threshold increases to $505,000 in 2026, followed by an additional 1% after.

• For higher income taxpayers the cap is reduced by 30% of the excess of the taxpayer’s MAGI over the threshold amount, however that deduction will not be reduced below $10,000.

Extension and Increase of Estate and Gift Limitation

• Effective in 2026, the basic exclusion amount will increase to $15 million and will be adjusted for inflation after 2025. This amount is a significant increase from the $13,990,000 limitation for 2025.

• Effective for estates of decedents dying and gifts made after December 31, 2025.

Overall Limitation on Itemized Deductions

• Beginning in 2026, itemized deductions will be reduced by 2/37 of the lesser of:

  • The amount of the deductions or

  • The taxable income that exceeds the dollar amount at which the 37% rate bracket begins after indexing for inflation in 2026.

• This provision permanently repeals the Pease limitation in effect prior to the TCJA.

New “Senior Deduction”

• Taxpayers aged 65 or older - and their spouses, if filing jointly – can claim a $6,000 deduction per qualified individual for tax years 2025-2028.

• This Senior Deduction is reduced by 6% (but not below zero) for adjusted gross income that exceeds $75,000 ($150,000 for joint filers).

Deductible Car Loan Interest

• Temporary tax deduction of up to $10,000 of interest paid on loans used to purchase a new personal-use passenger vehicle for tax years 2025-2028.

• Taxpayers are not required to itemize to take advantage of this deduction.

• Deduction phases out starting at $100,000 for single filers ($200,000 for joint filers).

• Debt must be incurred after December 31, 2024, for the purchase of a new vehicle with a gross vehicle weight rating under 14,000 pounds, with final assembly of the vehicle occurring in the United States.

Enhancement of the Child & Dependent Care Credit

• Beginning in 2026, the maximum credit rate for Child & Dependent Care Credit increases to 50% of qualified expenses for a maximum of $3,000 (one qualifying individual) or $6,000 (two or more).

• The maximum credit rate of 50% is reduced as taxpayer AGI increases above specific AGI limitations.

Credit of up to $1,700 for Contributions to Scholarship-Granting Organizations

• Beginning in 2027, the OBBBA provides for an income tax credit for each tax year equal to the amount of qualified contributions of cash made by a taxpayer during the year to a qualified scholarship-granting organization up to $1,700.

• Credit is only allowed for organizations in states that elect to participate in the program – this list is yet to be determined.

• Any amount taken as a credit cannot be counted as a charitable deduction.

Deduction Eligible Educator Expenses

• Unreimbursed employee expenses for eligible educators are now allowable as an itemized deduction beginning in 2026. Deduction is available for equipment and supplementary materials used by eligible educators as part of an instructional activity.

• Eligible educators include K-12 teachers, instructors, counselors, interscholastic sports administrators and coaches, principals, and aides in a school for at least 900 hours during a school year.

Tax-Deferred Investment Accounts for Children (Trump Accounts)

• Contributions are limited to $5,000 of after-tax dollars annually, with this limitation indexed for inflation each year.

• Eligible to receive contributions from parents, relatives, employers, and other taxable entities as well as non-profit and government entities. Contributions to the funds from tax-exempt entities, such as private foundations, are not subject to the $5,000 annual limit.

• No additional contributions of any kind are permitted to the accounts after the beneficiary has attained the age of 18.

• Subject to some exceptions, Trump account holders may not take distributions until age 18.

• Children born between January 1, 2025, and December 31, 2028, will receive a $1,000 per child contribution to their account from the federal government.

Enhancement of Adoption Credit

• Beginning in 2025, adoption credit is enhanced to include a refundable portion of up to $5,000, adjusted for inflation annually.

• Maximum credit of $17,280 per child, including $5,000 refundable.

• Refundable portion of adoption credit will not be eligible for carryforward to subsequent years.

Expanded Use of 529 Savings Plan Funds for K-12

• Tax-exempt distributions from 529 savings plans (tax-advantaged accounts that fund education expenses) are now eligible to be used for more expenses attributable to enrollment or attendance at elementary or secondary public, private, or religious schools.

• Expanded list includes: tuition, curriculum and curricular materials, books or other instructional materials, online educational materials, tuition for tutoring or educational classes outside of the home, fees for nationally standardized tests, advanced placement exams, college admissions exams, and educational therapies for students with disabilities provided by a licensed or accredited professional.

• Beginning in 2026, the Act also expands the annual limit for 529 account distributions related to K-12 expenses from $10,000 to $20,000.

• Expansion applies to distributions made after the date of enactment.

Qualified Higher Education Expenses for Purposes of 529 Accounts

• 529 plan tax-exempt distributions now apply to “qualified postsecondary credentialing expenses”.

• Allowable expenses include tuition, fees, books, supplies, and equipment required or enrollment or attendance at a recognized postsecondary credential program. This also includes fees for testing or continuing education required to obtain or maintain a recognized postsecondary credential.

ABLE Accounts

• Achieving a Better Life Experience (ABLE) accounts are for employed individuals with disabilities.

• Additional contributions are limited to the lesser of the applicable federal poverty level for a one-person household in the prior year, or the beneficiary’s compensation for the year.

• Contributions to ABLE accounts continue to be eligible for the Saver’s credit, and the Saver’s credit increases to $2,100 beginning in 2027.

• Tax-free rollovers from Section 529 qualified tuition programs to qualified ABLE programs are permitted.

No Tax on Tips

• Beginning in 2025 a new temporary deduction for individuals who receive qualified cash tips in occupations where tipping was customary before January 1, 2025.

• Deduction amount is up to $25,000 per year, per taxpayer and phases out by $100 for every $1,000 of MAGI above $150,000 for single filers and $300,000 for joint filers.

• Married taxpayers must file jointly to claim the deduction.

• Available to taxpayers who do not itemize.

• The IRS is required to publish a list of occupations qualifying for this deduction and must adjust withholding procedures to reflect the new deduction in 2026.

No tax on Overtime

• Beginning in 2025, a temporary deduction for individuals who receive “qualified overtime compensation”.

• Taxpayers may deduct up to $12,500 per year in qualified overtime compensation ($25,000 for joint filers) and the deduction phases out by $100 for every $1,000 of MAGI above $150,000 for single filers and $300,000 for joint filers.

• Available to taxpayers who do not itemize.

• Overtime must be properly reported on IRS forms such as W-2s (for employees) or 1099s (for non-employees).

• Employers must report the total amount of qualified overtime on employee’s W-2 forms.

Charitable Deduction Limitations

• Beginning in 2026, the Act provides for a floor of 0.5% of the taxpayer’s contribution base (generally adjusted gross income, or AGI). The act also provides rules for the order in which the taxpayer’s contributions are taken into account and for carryforwards of contributions disallowed by the 0.5% floor.

• Beginning in 2026, the ceiling restricting deduction of charitable contributions to 60% of AGI is made permanent.

Charitable Deductions for Non-Itemizers

• Beginning in 2026, individuals who do not itemize may claim a charitable deduction of a maximum of $1,000 for single filers and $2,000 for joint filers.

• Contributions must be made in cash, must be made to a public charity, and must meet certain other requirements.

Limitation on Wagering Losses

• Beginning in 2026, the amount of potentially deductible wagering/gambling losses will be limited to 90% of the amount of losses in the tax year, to the extent of the gains from any winnings.

• Prior to the Act, losses were deductible to the extent of gains.

Qualified Business Income Deductions

• Beginning in 2026, the Act sets the minimum deduction for active QBI at $400.

• An applicable taxpayer must have a minimum of $1,000 QBI to claim the deduction.

• The phase-in threshold window is increased from $50,000 to $75,000 for individuals and $100,000 to $150,000 for joint filers. Inflation adjustments will apply to these amounts for tax years beginning after 2026.

Research & Development Deductions Restored

• Domestic Section 174 expenditures are now fully deductible again after 12/31/2024.

• Small businesses (less than $31 million in revenue) may retroactively amend back to 2022.

• Large businesses ($31 million in revenue or more) may elect a catch-up deduction in 2025 or deduct ratably over two years in 2025-2026

• Foreign research & development expenses remain required to be capitalized and amortized over 15 years.

100% Bonus Depreciation – Now Permanent

• Applies to property acquired and placed in service after January 19, 2025

• Elective 100% expensing through 2030 for newly built or repurposed U.S. production real estate (“Qualified Production Property”)

  • To be eligible, QPP construction must start between January 20, 2025 and December 31, 2029, and the property must be placed in service in the United States before January 1, 2031.

Section 179 Expensing Cap Raised

• Deduction limit increased to $2.5 million with a $4 million phase-out, for property placed in service after December 31, 2024.

• Previously $1,000,000 limit with a $2.5 million phase out.

Interest Limitation Returns to Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)

• Beginning in 2025, §163(j) limitation reverts back to 30% of EBITDA, a critical change for leveraged real-estate and capital-intensive manufacturers.

FICA Tip Credit Expansion

• FICA tip credit under Code Sec. 45B is expanded to include beauty service businesses – barbering, hair care, nail care, esthetics, spa treatments – where tipping is customary, aligning them with food and beverage establishments.

Limitations on Deduction of Business Meals

• Taxpayers may deduct 50% of the otherwise deductible amount of meals provided on business premises for the convenience of the employer through December 31, 2025.

• Deduction of these business meals is eliminated entirely for amounts paid or incurred after December 31, 2025, with the exception of meals provided on certain fishing vessels and in certain fish processing facilities.
  
  
• Meals that remain 50% deductible include meals with clients or prospects, as well as meals while traveling for business (subject to certain rules) and meals provided at company-wide events like holiday parties or summer picnics remain 100% deductible.

Paid Family and Medical Leave Credit

• Credit for an applicable percentage of wages paid to qualifying employees during any period in which the employees are on family and medical leave, up to a maximum of 12 weeks of leave for any employee for the tax year.

• Act now allows an employer to instead choose a credit for the applicable percentage of premiums paid or incurred by an employer for an insurance policy that provides paid family and medical leave. Credit for insurance premiums is available whether or not leave is actually taken.

Employer-Provided Child Care Credit

• For tax years beginning after December 31, 2025, increased credit percentage from 25% to 40%, and 50% for eligible small businesses.

• Maximum annual credit increases from $150,000 to $500,000 and $600,000 for eligible small businesses.

• Eligible small businesses are those meeting a modified gross receipts test based on a 5-year period, rather than the standard 3-year period.

Employee Exclusion for Employer Payments of Student Loans

• “Educational assistance” provided under an employer’s qualified educational assistance program, up to an annual maximum of $5,250, is excluded from the employee’s income.

• Exclusion is made permanent and the maximum amount will be indexed for inflation for tax years beginning after 2026.

Dependent Care Assistance Program

• Beginning in 2026, the tax-free contribution limit increased to $7,500 annually (previously $5,000) for married individuals, and $3,750 for a married individual filing separately.

Energy Efficient and Clean Energy Credits

• Many credits were not extended, and others were completely terminated:

• • Energy Efficient Home Credit: Terminates effective 12/31/2025.

  • Residential Clean Energy Credit: Terminates effective 12/31/2025.

  • Energy Efficient Buildings Deduction: Deduction terminates for property for which construction begins after June 30, 2026.

  • Previously Owned Clean Vehicle Credit: Terminates for vehicles acquired after 9/30/2025.

  • Clean Vehicle Credit: Terminates for vehicles acquired after 9/30/2025. Credit is still available if the vehicle is acquired before 9/30/2025 but the purchaser does not take delivery until 2026.

  • Qualified Commercial Clean Vehicles Credit: Terminates for vehicles acquired after 9/30/2025.

  • Alternative Fuel Vehicle Refueling Property Credit (EV Chargers): Terminates for property placed in service after 6/30/2026.

  • New Energy Efficient Home Credit: Tax credit for constructing energy efficient homes meeting energy star standards. Originally scheduled to sunset in 2032, expiration date moved up to 6/30/2026.

One Percent Floor for Deductions of Corporate Charitable Contributions

• C corporations currently limited to 10% of their taxable income for charitable contributions will now also be required to hurdle a 1% floor.

• Any otherwise allowable charitable contribution by a corporate taxpayer for any tax year will be allowed only to the extent that the aggregate of the contributions exceeds 1% of the taxpayer’s taxable income for the tax year.

• Contributions disallowed either for exceeding the 10% maximum or failing to reach the 1% floor can be carried forward for five years.

Increased Information Reporting Threshold for Certain Payees

• Beginning in 2026, the Act increases the general reporting threshold and reporting threshold for payments to non-employees from $600 to $2,000.

• Beginning in 2027, the general reporting threshold is adjusted annually for inflation.

• The Act also revises backup withholding rules for certain foreign payees to reflect the inflation-adjusted thresholds.

1099-K De Minimis Reporting

• Only aggregate transactions in a year for a payee exceeding both $20,000 and 200 transactions are required to be reported.

Sellers of Farmland

• New election to pay capital gains tax in four equal installments as long as the land was used for farming for the 10 years preceding the sale.

• The first installment payment is due with the tax return for the year in which the sale occurs, and the following payments are also due with the returns for the next three years.

• If a payment is missed, the entire remainder of the capital gains tax balance is due immediately.

• Effective for tax years beginning after July 4, 2025.

Limit on Excess Business Losses Made Permanent

• For taxpayers other than corporations, any “excess business loss” of the taxpayer for the tax year is disallowed.

• Excess business losses are defined as the excess of trade or business deductions over the sum of gross income or gain for the year attributable to those trades or businesses, plus $313,000 for individuals and $626,000 for a joint return.

• Disallowed losses are carried forward.

Global Intangible Low Taxed Income (GILTI)

• Renamed to Net CFC Tested Income (NCTI).

• The 50% deduction allowed under Section 250 has now been reduced to 40%, creating a higher effective US tax rate of about 12.6%.

• Removed Qualified Business Asset Investment (QBAI) factor in calculating taxable income – expected to markedly raise U.S. residual tax on manufacturing subsidiaries outside of the U.S.

• For tax years beginning after December 31, 2025, the foreign tax credit “haircut” will be reduced from 20% to 10%, allowing corporations to better utilize the foreign tax credit with respect to the increased exposure to tax under this code section.

Foreign Derived Intangible Income (FDII)

• Renamed to Foreign Derived Deduction Eligible Income (FDDEI)

• The 37.5% deduction previously allowed has now been reduced to 33.34%, raising the export-related US tax rate to roughly 14%.

Controlled Foreign Corporation Attribution & High-Tax Exceptions

• The 2017 Tax Cuts and Job Act (TCJA) allowed downward attribution of stock ownership from a foreign person to a US person for the purpose of determining whether a US person is a US shareholder and whether a foreign corporation is a controlled foreign corporation (CFC).

• The Act reinstates the code section prohibiting this look-through for related downward attribution for tax years beginning after December 31, 2025.

Sourcing of income from sale of inventory produced in the United States

• For tax years beginning after December 31, 2025, the Act modifies the foreign tax credit limitation rules by introducing a special sourcing rule for certain sales of US-produced inventory through foreign branches.

• Generally, if a US person sells US produced inventory through a foreign sales branch, and such inventory is for use outside the United States, up to 50% of the sales income may be treated as foreign source income.

• This increase in foreign source income will likely allow more utilization of foreign tax credits and overrides the general rule of income sourcing which would consider all such income as US source.

• Proposed reduction in deductibility of SALT deductions for pass-through entity taxes.

• Proposed increase in QBI percentage from 20% to 23%.

• Proposed top tax rate of 39.6% for individuals making more than $2.5 million.

• Early drafts excluded Social Security benefits from gross income entirely.

• Proposed expansion of Medicare benefits and phased reduction of Medicare eligibility age from 65 to 60.

• Proposed increases in tax for private foundations and changes to college-endowment excise taxes.

• Proposed reduction of the corporate tax rate from 21% to 15% for companies that manufacture their products in the US.