2025–2026 Tax Changes Explained: What the ‘One Big Beautiful Bill’ Means for You

 

In July 2025, Congress passed a new law called the ‘One Big Beautiful Bill.’ This new bill is one of the most significant tax and spending overhauls in recent years. It makes many of the 2017 Tax Cuts and Jobs Act (TCJA) changes permanent while introducing dozens of new provisions that will affect everything from your paycheck to your health coverage. Explore our tax consultation services to understand how these changes impact you.

The bill impacts nearly every area of federal policy, including taxes, student loans, Social Security, clean energy, Medicaid, SNAP (food stamps), immigration enforcement, and defense spending. While some changes begin in 2025, many others won’t take effect until 2026 or later. Visit the IRS for official tax reform guidance.

Whether you are an individual taxpayer, a business owner, or someone relying on government programs, this bill affects you.

Here is what you need to know!

30-Seconds Summary:

The One Big Beautiful Bill Act (OBBBA), passed in July 2025, extends the 2017 Trump tax cuts and introduces significant changes across federal programs.

It makes tax cuts permanent, raises the standard deduction temporarily, and introduces new tax breaks for tipped and overtime workers.

Seniors earning under $75,000 get a $6,000 Social Security tax deduction, and the SALT deduction cap increases from $10,000 to $40,000 until 2030.

The bill imposes strict work requirements for Medicaid and SNAP, raising concerns that millions could lose coverage or benefits.

Clean energy incentives are being rolled back, while military and immigration enforcement funding is being massively increased, including $100 billion for ICE.

What Is the One Big Beautiful Bill Act?

The One Big Beautiful Bill Act (referred to as OBBBA for short) was passed in mid-2025. It was a highly controversial bill, and it passed by only a narrow margin in Congress. This bill alters the way the US government manages taxes, spending, and public programs, and many are concerned about its potential impact on the deficit, the social safety net, and climate policy. This bill:

• Makes the 2017 Trump tax cuts permanent.
• Cuts funding for Medicaid and food aid programs.
• Increased funding for defense and immigration enforcement
• Reduces tax incentives for clean energy programs

Extension of the 2017 Trump Tax Cuts

During Trump’s first term, he signed the Tax Cuts and Jobs Act, or TCJA, which lowered income tax rates for many people and businesses; however, this act was set to expire in 2025. Learn more about the TCJA from Forbes.

The new OBBB law makes those lower tax rates permanent. This means:

• Tax brackets stay lower for most income levels
• The standard deduction stays higher
• Personal and dependent exemptions remain removed
• Some limits on itemized deductions stay in place

In addition, there’s a temporary increase in the standard deduction, i.e., $1,000 for individuals and $2,000 for married couples. These additional deductions will remain in effect until 2028. Contact our business tax services to optimize your deductions.

No Federal Tax on Tips and Overtime (for Some)

A change that Trump promised during his campaign and has been implemented through this bill is tax relief on tips and overtime income. This means that individuals can deduct a portion of their tips and overtime income from their federal taxes.

However, not everyone will qualify for this. The deduction starts to go away once your income hits $150,000 as a single filer or $300,000 if you’re filing jointly. Furthermore, these benefits are not permanent and will expire at the end of 2028.

Alongside this change, the child tax credit has been increased to $2,200 per child. You now only need one parent to have a Social Security number to claim it, which makes it easier for more families to qualify.

The bill also raises the amount the government can borrow by an additional $5 trillion. This move helps the government continue to pay for existing programs, but it also means the national debt will continue to grow.

Social Security Taxes

During his campaign, Trump promised to eliminate taxes on Social Security income. While the new law doesn't go that far, it does provide some relief for older Americans.

If you're 65 or older and make less than $75,000 a year, you'll now qualify for a new tax deduction of up to $6,000. This change will be in effect from 2025 through 2028. See our Social Security tax guide for more details.

It is important to note that this deduction does not remove taxes on Social Security income; instead, it only lowers the amount of taxable income.

A Temporary Increase in SALT Deductions

The bill also increases the deduction limit for SALT (State and Local Tax) deductions.

• The deduction cap has been raised from $10,000 to $40,000, giving more relief to taxpayers in high-tax states.
• This increase only lasts five years. After that, the cap will return to $10,000.
• The higher deduction mainly helps people living in places like California, New York, and New Jersey, where state and local taxes are high.

Major Cuts to Medicaid

The new law brings a number of changes to Medicaid, the public health insurance program for low-income and disabled Americans.

Now, adults without children or disabilities must work in order to stay eligible for Medicaid coverage. Another big change is that people will have to renew their eligibility twice a year instead of once. They’ll also need to provide proof of income and residency more often.

To help pay for other tax cuts, the law also lowers how much states can collect in provider taxes from 6% to 3.5% by 2032.

Some lawmakers pushed back, especially those from rural states where hospitals rely heavily on Medicaid funding. Because of this, the bill includes a $50 billion fund to help rural hospitals.

There's also a new requirement for able-bodied adults with children aged 15 or older: they must work or volunteer at least 80 hours a month.

These changes are expected to make it harder for many people to stay enrolled, and government analysts believe up to 12 million Americans could lose their Medicaid coverage in the next ten years.

Cuts to SNAP (Supplemental Nutrition Assistance Program)

Changes have also been made to SNAP, which is used by millions of low-income Americans.

• Although the federal government fully funds this program, the states are required to contribute more.
• This change would start in 2028.
• States with an error rate over 6% will be required to pay between 5% and 15% of the costs themselves. However, the states with a lower error rate will continue to receive fully funded food benefits.
• In addition, adults who can work and don’t have any dependents will also need to meet new work requirements in order to receive food benefits.

Pell Grants and Student Loan Limits

Big changes are in store for people applying for student loans. This law will make Pell Grants ( which helps low-income students) available to more students, especially those in short-term and work-focused training programs.

However, it also places limits on the amount of money people can borrow from the government for educational purposes.

• Graduate students can borrow up to $20,500 a year and $100,000 in total for unsubsidized loans.
• Students studying to be doctors or lawyers can borrow up to $50,000 a year and $200,000 in total.
• There is also a total borrowing limit of $257,500 for all federal student loans combined.
• Parents who borrow through the Parent PLUS loan program can borrow up to $20,000 a year per child and $65,000 in total.
• The bill gets rid of Grad PLUS loans, which let graduate students borrow more money to cover school costs.

This plan is starting in mid-2026, giving new borrowers only two repayment options:

• a standard plan with fixed payments or
• an income-based plan called the Repayment Assistance Plan (RAP).

The law also eliminates the option to pause payments for individuals who are unemployed or facing financial hardship.

Clean Energy Tax Breaks

One of the biggest disagreements between House and Senate Republicans was how to handle federal clean energy tax credits. Both versions of the bill aim to end the Biden-era incentives, but the Senate version takes a slower approach.

• The Senate decided to give companies more time to use the tax credits, especially those building wind and solar energy projects. This gives businesses a longer window to finish construction and still qualify for benefits.
• Both the House and Senate agree that companies with supply chains tied to “foreign entities of concern” (like China) should be blocked from claiming these credits.
• If a company starts building in 2025, it can get the full tax credit. If they begin in 2026, the credit drops to 60%. In 2027, it drops further to 20%. After that, by 2028, the credit will be entirely removed.
• In contrast, the House wanted to end the credits much sooner, without the gradual phase-out plan that the Senate included.

Defense, Border, and Immigration Spending

There is also a major increase in federal spending for both the military and immigration enforcement.

• Under this bill, military funding will increase by $150 billion. A significant part of this money will be used to build more ships for the Navy and support Trump’s missile defense system known as the “Golden Dome.”
• Immigration and Customs Enforcement (ICE) will also get huge funding of $100 billion, which will be spread out over the next few years until 2029.
• This additional funding will be used to double the number of beds in immigration detention centers and to hire many more ICE officers.
• Before this bill, ICE’s yearly budget was about $8 billion. The new funding makes it the largest federal law enforcement agency in the country, according to a report by the Brennan Center for Justice.

Plan Ahead, Prepare for Your 2025–2026 Taxes

With so many new tax rules, it is smart to start planning now. Even though most of the changes won’t hit until 2026, you can still take steps this year to reduce your future tax burden. Read our 2025 tax planning guide for practical tips.

You can also talk to a qualified tax professional to see how the new law affects you personally. Let Fincsol guide you through the changes. Book a consultation today!

FAQs