Honestly, the "tax cliff" was all anyone in DC could talk about for three years. We were staring down a massive expiration of the 2017 rules that would have basically jacked up rates for almost every breathing American. But then came July 2025. Congress passed H.R. 1, officially known as the One Big Beautiful Bill Act (OBBBA).
It changed everything.
If you're sitting there wondering why your paycheck looks a little different or what's going to happen when you file your 2025 returns this spring, you aren't alone. The new republican tax bill isn't just an extension; it's a massive overhaul with some quirky new features—like tax-free tips and a "Trump Account" for kids—that sounds like something out of a futuristic finance novel.
The Brackets are Staying Put (Mostly)
The biggest fear was that the top rate would jump back to 39.6%. That didn't happen. The OBBBA made the seven tax brackets permanent. For 2026, the rates are staying at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
But here is the kicker: the income thresholds moved.
Inflation adjustments for 2026 are actually pretty generous. If you’re a single filer, you won't hit that top 37% bracket until you clear $640,600. For married couples filing jointly, that number jumps to $768,700.
The standard deduction got a "bonus" too. For 2026, it is $16,100 for singles and $32,200 for joint filers. This is a big deal because it means a huge chunk of your income isn't even touched by the IRS before they start counting.
What’s This About Tax-Free Overtime?
This was the "surprise" during the campaign that actually made it into the law. If you work a job where you're clocking extra hours, the new republican tax bill allows you to exclude overtime pay from your federal taxable income.
There are limits, obviously. You can't just call your whole salary "overtime." But for hourly workers, this is a massive shift. The same goes for tips. If you're in the service industry, those tips are now exempt from federal income tax.
It's not all sunshine, though. While you don't pay income tax on them, you still generally have to deal with payroll taxes (Social Security and Medicare). The IRS issued transitional relief (IR-2025-110) recently to help employers figure out how to report this without losing their minds.
The New "Trump Accounts" for Kids
One of the more unique parts of the OBBBA is the creation of tax-exempt savings accounts for children born between 2025 and 2028. The government actually seeds these with $1,000.
Parents can add up to $5,000 a year.
The money grows tax-free.
Once the kid hits 18, they can use it for:
- College or trade school.
- Buying a first home.
- Starting a retirement fund.
It's basically a Super-IRA for toddlers.
The SALT Cap Drama (Finally) Resolved
For years, people in high-tax states like New York, New Jersey, and California were screaming about the $10,000 limit on State and Local Tax (SALT) deductions. It felt like a penalty for living in a blue state.
The new bill sorts this out—kinda.
The SALT cap was raised to $40,000 for 2025 through 2029. But there's a catch (there's always a catch). If you make more than $500,000, that cap starts phasing back down toward the old $10,000 limit.
Big Wins for Business and Estates
If you own a small business, you probably know about the Section 199A deduction. It allows pass-through entities (like LLCs or S-corps) to deduct 20% of their income. The OBBBA didn't just keep this; it made it permanent and actually bumped the deduction to 23% for certain industries through 2028.
And if you're worried about the "Death Tax," the exemption is now massive. For 2026, the estate tax exclusion is $15 million per person. A married couple can shield $30 million from federal estate taxes.
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What Most People Miss: The Car Loan Deduction
Wait, you can deduct car interest now?
Yes, but only if you bought the car for personal use and it’s a "qualified vehicle." This is a temporary provision lasting through 2028. You can deduct up to $10,000 in interest paid on the loan.
However, if you're high-income, you're out of luck. The phase-out starts at $100,000 for singles and $200,000 for joint filers.
The "Green" Trade-Off
To pay for these cuts, the GOP went after the Inflation Reduction Act's "green" subsidies. The EV tax credit is basically history for most consumers, and the Energy Efficient Home Improvement Credit (25C) won't apply to property placed in service after December 31, 2025.
Basically, the government is saying: "We'll give you a tax-free tip and a car loan deduction, but we're not paying for your Tesla anymore."
Actionable Steps for 2026 Tax Planning
Don't wait until April 2027 to deal with this. The OBBBA is active now.
- Adjust your W-4: With the new overtime and tip exemptions, your current withholding might be way off. Talk to your payroll department so you don't give the government a giant interest-free loan.
- Max out the "Trump Account": If you have a newborn, get that $1,000 seed money and start the $5k annual contribution. The compounding interest on a tax-free account starting at age zero is a literal goldmine.
- Audit your "Green" projects: If you were planning on installing solar panels or heat pumps, check the new expiration dates. Many of those credits are evaporating faster than expected.
- Check your SALT status: If you itemize and live in a high-tax state, you might actually be able to deduct significantly more this year.
- Seniors should look for the "Bonus": If you are 65 or older, there is an additional $6,000 deduction available if your income is under $75k ($150k for couples).
The new republican tax bill is a beast, but it’s the reality for the next decade. Keeping your records tight on things like overtime and auto loan interest is going to be the difference between a massive refund and a "Why do I owe $4,000?" surprise next spring.