Last week, the House of Representatives passed the One Big Beautiful Bill Act (OBBB) in a mostly party line vote and now gives us something concrete to discuss when it comes to the GOP budget priorities.
Before it can become law, it must be passed by the Senate, the two versions must be reconciled, and then signed by the President. It will still be many weeks and perhaps months before that happens, but we can still look at the parts of this bill to see how it will affect us.
So, what's in the bill?
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1. Extension of Tax Rates & Brackets
The Tax Cut and Jobs Act of 2017 established our current tax rates and brackets:
Tax Bracket Single Married Filing Jointly Head of Household
10% $0 – $11,924 $0 – $23,849 $0 – $16,999
12% $11,925 – $48,474 $23,850 – $96,949 $17,000 – $64,849
22% $48,475 – $103,349 $96,950 – $206,699 $64,850 – $103,349
24% $103,350 – $197,299 $206,700 – $394,599 $103,350 – $197,299
32% $197,300 – $250,524 $394,600 – $501,049 $197,300 – $250,499
35% $250,525 – $626,349 $501,050 – $751,599 $250,500 – $626,349
37% $626,350+ $751,600+ $626,350+
These were set to expire after this year but the OBBB would extend these indefinitely.
It would also keep the expanded standard deduction, which is $32,000 for married couples and $16,000 for single filers, but include a temporary increase of $2,000 and $1,000 each through 2028. In other words, through 2028, the standard deduction would be $34,000 for married couples and $17,000 for single filers but fall back down for 2029.
2. Increases Child Tax Credit
The child tax credit is currently $2,000 per qualifying child and, since it is a credit, reduces your tax liability by that amount. It is also partially refundable too, up to $1,700. The OBBB would increase the credit to $2,500 from 2025 through 2028. In 2029, it would be indexed to inflation.
One big change, however, is that undocumented immigrants would no longer qualify for this credit even if their children are U.S. citizens.
3. Increase in SALT Deduction
The State and Local Tax deduction is currently capped at $10,000 and would rise to $40,000 for taxpayers earning less than $500,000 under the current proposals. The cap and income limits would increase by 1% each year for the next ten years. The SALT deduction is more significant for taxpayers in high-tax states.
4. No Tax on Tips & Overtime
Traditionally tipped jobs would get a $25,000 deduction from tipped income as long as they earned under $160,000. A separate bill that specifically addressed this issue was unanimously passed in the Senate and it provided for a $25,000 deduction for individuals with a Social Security Number.
5. Auto Loan Interest Deduction
The OBBB includes an above-the-line deduction for auto loan interest on vehicles assembled in the United States. You would be limited to a $10,000 deduction on interest paid as long as your modified adjusted income is below $100,000 ($200,000 for married filing jointly). For those with incomes above that, the deduction is reduced by $200 for each $1,000 of income above the limit.
6. Senior Standard Deduction Increased
If you are older than 65, your standard deduction will be increased by an additional $4,000 as long as your adjusted gross income is less than $75,000 as a single filer and $150,000 for those married filing jointly. This would apply through 2028.
7. Side Hustlers Pass-Through Income
If you earn an income through various gigs or side hustles, the pass-through deduction for that type of business income increased from 20% to 23%. This applies to non-salaried workers, such as freelancers and ridesharing drivers, as well as business owners and partners in legal or accounting firms.
8. Medicaid Reductions
To help pay for the cost of the OBBB, Medicaid spending would be reduced and recipients living above the federal poverty line would be required to pay for part of their costs. There would also be an additional work requirement for childless adults. They would be required to prove they had worked, volunteered or attended a school for 80 hours in the month before enrollment.
9. Reduction in SNAP Benefits
Another area Republicans are seeking to reduce costs is in the Supplemental Nutrition Assistance Program (SNAP). The OBBB would cut the program by approximately 30% and add additional work requirements.
The cuts would leave states to fill the gap or see a reduction in benefits. The work requirements are similar to the ones added to Medicaid – individuals must work at least 80 hours per month to qualify, which is a stricter requirement than what exists today.
10. Student Loan Forgiveness Changes
If you have your student loan forgiven this year, you would not owe any taxes on that forgiveness because of the American Rescue Plan Act. That provision expires after this year and would not be extended by the OBBB and so the amount forgiven would be considered income and taxable.
There is an exception that was included, which is when loans are forgiven as a result of death or total and permanent disability as well as funds received from an employer, which is capped at $5,250 per year.
11. Electric Vehicle Credits Eliminated
There are several existing electric vehicle tax credits that would all be repealed for vehicles placed into service after this year. They were established by the Inflation Reduction Act and would've otherwise expired in 2032.
The OBBBA would only keep a special rule that keeps the IRA tax credits in place through 2026 but only for manufacturers that haven't sold more than 200,000 electric vehicles by the end of 2025.
The bill also included a new annual federal vehicle registration fee of $250 for EVs and $150 for hybrid vehicles.
