Anaya Nolan
The One Big Beautiful Bill Act, also known as the Tax Cuts and Jobs Act (TCJA), was signed into law by President Trump on July 4, 2025. This new legislation makes permanent several temporary tax law changes from the original TCJA passed in 2017. The bill includes tax cuts, reforms to Medicaid and Pell Grants, and changes to taxes on tips and overtime pay. With the expiration of the original TCJA, lawmakers are reopening the tax code to address its expiring provisions, and partisan control of Congress will play a significant role in determining whether these provisions will be renewed, reformed, or allowed to expire.
| Characteristics | Values |
|---|---|
| Name of the new tax law | One Big Beautiful Bill (OBBB) |
| Date of enactment | July 4, 2025 |
| Permanent extension of tax cuts from the Tax Cuts and Jobs Act (TCJA) | Yes |
| Increase in the standard deduction | $15,750 for Single, $23,625 for Head of Household, and $31,500 for Married Filing Jointly filers |
| Adjustments to reflect inflation | Yes |
| Tax cuts for children | Trump savings accounts for children, a form of an IRA retirement account with a $1,000 tax credit when opened for a child born between January 1, 2025, and December 31, 2028 |
| Child Tax Credit | Permanently increased to $2,200 per child under 17, with annual adjustments for inflation every year |
| State and local tax (SALT) deduction | Cap increased from $10,000 to $40,000 |
| Tax on tips and overtime | No tax on tip or overtime income for certain workers |
| Tax credits for electric vehicles | Ended on September 30, 2025 |
| Tax breaks for lower- and middle-income households | Yes |
| Tax increases for wealthier individuals and corporations | Yes |
| Overall impact on taxpayers | 62% of filers may face a tax increase relative to current policy in 2026 |
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What You'll Learn
Tax Cuts and Jobs Act (TCJA)
The Tax Cuts and Jobs Act (TCJA) is a United States federal law that amended the Internal Revenue Code of 1986. It was passed in 2017 and included significant changes to the tax code. The TCJA was expected to lower taxes by an average of $1,600 in 2018 and 2025, with the top 20% of Americans by income projected to receive roughly 65% of the tax savings. The act cut the corporate tax rate from 35% to 21%lowered most individual income tax rates, increased the standard deduction, and eliminated personal exemptions. It also included Opportunity Zones, a tool designed to spur economic development and job creation in distressed communities.
The TCJA simplified the tax code for some but not for others. It lowered corporate debt and brought money back from overseas without bringing back business activity. While it led to an estimated 11% increase in corporate investment, its effects on economic growth and median wages were smaller than expected. According to a 2024 study, in response to the corporate tax provisions of the TCJA, the top 10% of income earners saw an increase in after-tax incomes.
The TCJA's impact on individuals and businesses varied. It cut taxes for most U.S. taxpayers, with approximately 65% of households seeing lower income taxes and 6% experiencing an increase. More than 90 Fortune 500 companies paid an effective federal tax rate of 0% or less as a result. A Bloomberg analysis found that while business investment increased in 2018, relatively little of that activity could be attributed to lower taxes. A similar study by the Federal Reserve Bank showed that corporations focused on stock buybacks and debt reduction rather than new investments or research and development.
The TCJA's provisions were initially temporary and set to expire at the end of 2025. However, the One Big Beautiful Bill of 2025 extended and made permanent many of the TCJA's tax cuts and reforms. These include increasing the standard deduction, eliminating personal exemptions, cutting energy credits, and reforming Medicaid and student loans. The expiration of the TCJA provisions and the introduction of the One Big Beautiful Bill highlight the dynamic nature of tax laws, with potential extensions, amendments, or reversions occurring over time.
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One Big Beautiful Bill (OBBB)
The One Big Beautiful Bill Act (OBBBA) of 2025 introduces sweeping changes to the US tax code, impacting how Americans file their taxes in 2025 and beyond. While the bill does not include significant structural reforms, it makes permanent many individual tax cuts and reforms from the 2017 Tax Cuts and Jobs Act (TCJA) and introduces dozens of new, narrow tax breaks.
One of the most significant areas of reform in the OBBBA is the repeal or early phase-out of the Inflation Reduction Act's (IRA) green energy tax credits. These changes are expected to raise about $500 billion over a decade, effectively reducing the cost of these credits by half. Several IRA credits, such as those for electric vehicles (EVs) and residential energy products, are repealed, while most others are restricted or phased out on an accelerated schedule. The law also expands the carbon oxide sequestration credit and extends the clean fuel production tax credit.
The OBBBA introduces several new deductions for working Americans and seniors. For example, individuals who receive qualified overtime compensation can deduct the pay that exceeds their regular rate, with a maximum annual deduction of $12,500 ($25,000 for joint filers). Additionally, employees and self-employed individuals can deduct qualified tips received in certain occupations, with a maximum annual deduction of $25,000. The bill also includes a new $6,000 deduction for individuals aged 65 and older, in addition to the existing additional standard deduction for seniors.
The OBBBA also makes permanent the TCJA's treatment of international business income, providing certainty for US-based multinational companies. It also permanently reverses the tightening of the interest limitation on business tax returns, restoring the EBITDA-based limitation at 30%.
Other notable changes include a refundability feature for the Adoption Tax Credit, allowing taxpayers to receive a refund of up to $5,000, and expanded eligible expenses for 529 Plan distributions, including K-12 expenses and additional post-secondary educational costs.
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Corporate tax rate
The Tax Cuts and Jobs Act (TCJA) of 2017 was the largest federal tax code overhaul in decades. It cut the corporate tax rate from 35% to 21%, the largest corporate tax cut in American history. The rate cut was made permanent, but many other components of the TCJA are set to expire at the end of 2025.
The corporate tax cut was the most expensive part of the law, projected to reduce revenues by $1.35 trillion from fiscal years 2018 to 2027. The reduction in corporate tax rates was expected to boost economic growth and increase wages for workers. However, there is uncertainty among economists about its actual effect on the economy and federal revenues.
As the expiration of other TCJA provisions approaches, there may be opportunities to re-examine corporate tax policies and explore reforms. Some policymakers and economists have discussed further changes to the corporate tax rate as part of the tax policy discussion in 2025.
The outcome of the 2024 election will have a significant impact on the direction of tax policy. Republicans are looking to extend the TCJA and further expand some tax cuts, while Democrats are focused on reforming tax breaks for lower- and middle-income households and raising taxes on corporations and wealthy individuals.
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Child tax credit
The Child Tax Credit (CTC) is a tax break intended to help families with qualifying children. The credit's scope has been expanded over the years, with the American Rescue Plan allowing 17-year-olds to qualify and providing access to the poorest families in the country. The Rescue Plan also extended the full CTC to Puerto Rico and the US Territories.
In 2021, the CTC was temporarily increased to give families up to $3,600, with monthly advance payments of half the estimated 2021 CTC amounts being sent from July to December. However, these changes lasted only a year, and the credit amount reverted to $2,000.
The One Big Beautiful Bill (OBBB), signed into law in July 2025, includes a permanent increase in the CTC to $2,200 per child under 17, with annual adjustments for inflation. This change will take effect for families filing income tax returns in 2026. Additionally, the OBBB introduces a requirement for children and at least one of their parents or guardians to have a Social Security number to qualify for the CTC.
The shift in CTC qualifications is part of a years-long effort to limit immigrants' access to government services. While the new requirements will increase the credit amount and index it to inflation, they will also result in an estimated 2.7 million American children no longer qualifying for the credit.
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Tax breaks for lower- and middle-income households
The One Big Beautiful Bill (OBBB) of 2025 includes legislation that prevents most of the tax laws from reverting to what they were in 2017, while also introducing new changes. The bill, also known as the Tax Cuts and Jobs Act (TCJA), includes provisions that benefit low- and middle-income households.
One of the key provisions is the standard deduction boost, which has been increased to $15,750 for single filers, $23,625 for head-of-household filers, and $31,500 for married filing jointly. These amounts will also be adjusted for inflation each year. Additionally, the bill provides tax benefits for childcare affordability, with a focus on making childcare more affordable for working families.
The OBBB also introduces tax relief for seniors and eliminates taxes on tips and overtime for certain workers. If you earn tips and your income is $150,000 or below, you may be eligible to claim a deduction. Similarly, there is a new provision for a deduction of up to $12,500 for qualified overtime income for tax years 2025 through 2028, which begins to phase out for income above $150,000.
The Child Tax Credit has also seen an increase, rising to $2,200 per child under 17, with annual adjustments for inflation. This credit is available to very low-income families, offering more support to parents with financial needs. Furthermore, there is a tax credit available for those who adopt a child, helping to cover expenses related to the adoption process.
While the OBBB provides some benefits to low- and middle-income households, partisan control of Congress plays a significant role in shaping tax policies. Democrats have expressed a focus on reforming tax breaks for these income groups, aiming to raise taxes on wealthier individuals and corporations.
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Frequently asked questions
The One Big Beautiful Bill (OBBB) was signed into law on July 4, 2025. It makes permanent many of the temporary tax law changes that were first introduced as part of the Tax Cuts and Jobs Act (TCJA) in 2017.
The One Big Beautiful Bill includes legislation to stop most of the tax laws from reverting to what they were in 2017, while making some additional changes. These include:
- Increasing the cap on the amount of state and local or sales tax and property tax (SALT) that can be deducted
- Cuts to energy credits passed under the Inflation Reduction Act
- Changes to taxes on tips and overtime for certain workers
- Reforms to Medicaid
- Increases the Debt ceiling
- Reforms Pell Grants and student loans
The TCJA reduced average tax burdens for taxpayers across the income spectrum and temporarily simplified the tax filing process through structural reforms. It also boosted capital investment by reforming the corporate tax system and improving the international tax system.
There are several criticisms of the TCJA, including:
- It did not simplify the tax code and kept most loopholes intact
- The process was "rushed and secretive", resulting in "deeply flawed legislation"
- It may have had a significant negative impact on graduate students, particularly those in private universities
- It could trigger a trade war and violate World Trade Organization rules, according to finance ministers of major European economies
