If you’ve been scrolling through the news lately, you’ve probably seen the headlines about the One Big Beautiful Bill Act. It’s the massive tax overhaul President Trump signed into law on July 4, 2025. Honestly, there is so much noise around this thing that it’s hard to tell what’s actually changing for your wallet and what’s just political talk.
Most people think this is just a copy-paste of the 2017 tax cuts. It’s not.
While it does make those old 2017 brackets permanent, there are some weird, specific new rules that basically nobody is talking about—like the new "Trump Accounts" for kids and a very specific deduction for car loans. If you’re trying to plan for 2026, you’ve got to look at the fine print because the "No Tax on Tips" promise isn't exactly what it sounds like on a bumper sticker.
The "No Tax on Tips" and Overtime Reality Check
Let's start with the big one. During the campaign, the slogan was simple: "No Tax on Tips." Now that it's law, the reality is a bit more... administrative.
Basically, it’s not a total exemption from all taxes. It is a federal income tax deduction. This means you still pay Social Security and Medicare taxes (FICA) on those tips. If you’re a server or a barber, you can deduct up to $25,000 in tips from your income, but only if your job was "customarily tipped" before 2025. The IRS actually put out a specific list of eligible jobs in late 2025 to stop high-paid consultants from suddenly claiming their bonuses were "tips."
The same vibe applies to overtime. You can deduct the "premium" part of your OT pay—that extra half-time—up to $12,500 for single filers.
But here’s the kicker: both of these phase out if you make too much money. If you’re single and your modified adjusted gross income (MAGI) hits $150,000, the benefit starts to vanish. It's really designed for the working class, not the corner office.
Those New Brackets and the Standard Deduction
The 2025 law basically stopped a massive tax hike that was supposed to happen when the old TCJA rules expired. Instead of the rates jumping back up, the seven-bracket system is here to stay.
For the 2026 tax year (the stuff you’ll file in early 2027), the numbers have shifted slightly for inflation.
- 10% Rate: Hits the first $12,400 for singles ($24,800 for couples).
- Top 37% Rate: Kicks in once you cross $640,600 as a single filer ($768,701 for married couples).
The Standard Deduction also got a "beautiful" boost. For 2026, it’s going up to $16,100 for singles and $32,200 for married couples.
If you’re over 65, there’s an extra "bonus" deduction of $6,000 that lasts through 2028. My grandfather is thrilled about this, but you have to watch the income limits—it starts phasing out at $75,000 for individuals.
The SALT Cap: A Massive Win for High-Tax States
If you live in New York, California, or New Jersey, you probably hated the $10,000 cap on State and Local Tax (SALT) deductions. It felt like a penalty for living in an expensive state.
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The new plan raises that cap to $40,000 starting in 2025 and it'll tick up by 1% every year through 2029.
| Tax Year | SALT Deduction Cap (Joint) |
|---|---|
| 2024 | $10,000 |
| 2025 | $40,000 |
| 2026 | $40,400 |
There's a catch, though. If you make more than $500,000, that $40k cap starts shrinking back toward $10k. It’s a middle-class and upper-middle-class win, but the ultra-wealthy are still stuck with the old limit.
Surprising Add-ons: Cars and Kids
This is where the bill gets "creative."
The Car Loan Deduction: For the first time in decades, you can deduct interest on a car loan. But—and it's a big but—the car has to be a new, U.S.-assembled vehicle. You can deduct up to $10,000 a year in interest. This is clearly a move to prop up the domestic auto industry, but it expires at the end of 2028.
Trump Accounts: Starting July 4, 2026, the government is seeding "Trump Accounts" for newborns with $1,000. Parents can add up to $5,000 a year tax-free. It’s sort of like a 529 plan but more flexible—you can use it for a first home or retirement later on.
The Business Side: Corporate Rates and Small Biz
On the business front, the 21% corporate rate stayed put, despite some talk of moving it to 15% or 18%. However, for the small biz owners out there (the "pass-through" entities), the 20% QBI deduction is now permanent.
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This is huge.
If you're a freelancer or own a small LLC, you were facing a "tax cliff" where 20% of your income was suddenly going to be taxed again. That’s gone. You can keep that deduction forever now.
What You Should Actually Do Now
Look, the 2025 tax plan is a lot to digest. If you’re an hourly worker, make sure your payroll department is actually tracking your "qualified overtime" correctly. The IRS is giving companies some slack in 2025, but by 2026, those W-2s need to be exact.
If you're planning on buying a car, check the assembly plant. If it’s not made in the U.S., you're leaving that interest deduction on the table.
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Finally, if you used to take the standard deduction but you live in a high-tax state, it might be time to start saving property tax receipts again. With the SALT cap at $40,000, itemizing might actually save you thousands for the first time in years.
Actionable Next Steps:
- Check your paystub: Ensure your "tips" or "overtime" are being categorized separately so you can claim the federal deduction.
- Audit your "Made in USA" purchases: If you bought a qualified vehicle in 2025, gather your loan interest statements for your 2026 filing.
- Consult a pro on SALT: If your state and local taxes exceed $10,000, run a "mock" tax return to see if itemizing now beats the new $32,200 standard deduction.