Highlights of the One Big Beautiful Bill: Taxes, Medicaid, and Energy

The One Big Beautiful Bill, explained in plain terms, is a sweeping July 2025 law (Public Law 119-21) that locks in the 2017 individual tax cuts, adds new deductions for tipped workers, overtime pay, car loan interest, and seniors, raises the SALT cap, ends most clean energy credits, pumps roughly $170 billion into immigration enforcement, imposes work requirements on Medicaid expansion enrollees, expands fossil fuel leasing on federal land, adds more than $125 billion to defense, and raises the debt ceiling by $4 trillion. The Congressional Budget Office estimated the package adds about $3.9 trillion to the national debt over ten years.

Income Tax Rates and the Standard Deduction Stay Put

The seven brackets set in 2017 stay in place rather than snapping back at the end of 2025. Rates remain 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Without this extension, most of those would have risen: 12% back to 15%, 22% to 25%, 24% to 28%, and the top rate from 37% to 39.6%.¹

The higher standard deduction also stays. For 2026, single filers deduct $16,100, heads of household $24,150, and married couples filing jointly $32,200. Had the extension failed, those figures would have dropped to roughly $8,350, $12,250, and $16,700.¹

The Child Tax Credit likewise stays at its expanded level rather than falling back to $1,000 per child. Phase-outs remain at $200,000 for single filers and $400,000 for joint filers, and the credit adjusts for inflation starting in 2026. One new condition: at least one parent or guardian on the return must have a Social Security number to claim it.²

New Deductions for Tips, Overtime, Car Loans, and Seniors

Three new above-the-line deductions run from 2025 through 2028 and are available whether you itemize or take the standard deduction.

The No Tax on Tips provision lets workers deduct up to $25,000 in tip income. The No Tax on Overtime provision covers the premium portion of overtime pay required by the Fair Labor Standards Act, capped at $12,500 for single filers and $25,000 for joint filers. It phases out once modified adjusted gross income passes $150,000 for individuals or $300,000 for couples.³

The No Tax on Car Loan Interest deduction covers interest on a loan for a new vehicle assembled in the United States. The car must be for personal use, weigh under 14,000 pounds, and be new to you. Used cars and leases don’t qualify, and the loan must originate after December 31, 2024. The maximum deduction is $10,000 per year, phasing out at $100,000 in modified adjusted gross income for single filers and $200,000 for joint filers.³

For seniors, the law creates a $6,000 bonus deduction targeted at offsetting federal taxes on Social Security benefits. The House Ways and Means Committee said the provision means roughly 90% of seniors will owe no federal tax on their Social Security income.⁴ The deduction doesn’t technically end taxation of benefits for everyone; it lifts the income level at which taxation kicks in so high that mainly higher-earning retirees will still owe on those payments.

SALT Deduction Cap Rises, But Not for the Top Earners

The cap on state and local tax deductions jumps from $10,000 to $40,000 for 2025, with 1% increases each year through 2029. For 2026 the cap sits at roughly $40,400.

Higher earners see less benefit. The $40,000 base phases down for taxpayers with income above $500,000, shrinking by 30 cents for every dollar above that threshold, until the cap lands back at $10,000. The phasedown income threshold also rises 1% per year through 2029. The practical effect is that middle- and upper-middle-income households in high-tax states gain the most; the wealthiest see little change.

Trump Accounts, 529 Plans, and HSAs

The law creates Trump Accounts, tax-advantaged savings accounts for children under 18. The federal government makes a one-time $1,000 contribution for each eligible child born between 2025 and 2028 for whom an account is opened, though accounts cannot be funded before July 4, 2026. Parents and others can add up to $5,000 a year, and employers can contribute up to $2,500 annually without that counting as taxable income to the employee.² The White House projects that maximum contributions and average stock market returns could grow an account opened for a baby born in 2026 to about $303,800 by age 18.⁵

529 education savings plans get broader. Starting January 1, 2026, the annual K-12 expense limit doubles from $10,000 to $20,000 per student. Eligible K-12 expenses now include curriculum materials, tutoring, standardized test fees, dual enrollment courses, and educational therapies for students with disabilities. On the postsecondary side, 529 funds can cover approved nondegree credentials, apprenticeships, and professional licensing costs. Rollovers from 529 plans to ABLE accounts are now permanent.

Health savings accounts also open up. Starting January 1, 2026, bronze-tier and catastrophic marketplace plans qualify as HSA-compatible, and people in direct primary care arrangements can contribute to HSAs and use the funds tax-free to pay periodic care fees.²

Business Owners and Estates

The 21% corporate rate from 2017 was already permanent and doesn’t change. For pass-through owners, the Section 199A qualified business income deduction survives past its scheduled 2025 expiration. For 2026, the full 20% deduction is available without wage or property limits for single filers with taxable income up to $201,750 and joint filers up to $403,500. Above those figures more complex rules apply, and the deduction phases out entirely at $276,750 for single filers and $553,500 for joint filers.⁶

The law restores 100% bonus depreciation for qualifying business property purchased and placed in service after January 19, 2025. Businesses can deduct the entire cost of eligible equipment or machinery in the year of purchase rather than spreading it out.²

The federal estate and gift tax basic exclusion rises to $15,000,000 per individual for 2026, letting a married couple shield up to $30 million from federal estate tax through combined exemptions.⁷ Most Americans will never owe federal estate tax; anyone with large holdings or a family business should note the higher figure when updating plans.

Clean Energy Credits Ending

Nearly every major clean energy tax credit is eliminated or accelerated to an early end, and some deadlines have already passed:

The new clean vehicle credit (Section 30D), the used clean vehicle credit (Section 25E), and the commercial clean vehicle credit (Section 45W) end for vehicles acquired after September 30, 2025.
The energy efficient home improvement credit (Section 25C) and the residential clean energy credit (Section 25D) end for property placed in service or expenditures made after December 31, 2025.
The clean fuel production credit ends for fuel produced after December 31, 2025, and clean electricity production and investment credits for wind and solar face strict enforcement of termination provisions.

If you were planning a solar installation, heat pump upgrade, or electric vehicle purchase to claim one of these credits, the qualifying purchase had to be completed by the relevant cutoff.²

Medicaid Work Requirements

Beginning January 1, 2027, adults enrolled in Medicaid through the Affordable Care Act expansion must work or take part in community service activities for at least 80 hours a month to keep coverage. States can start earlier, and the Secretary of Health and Human Services can grant compliance extensions through December 31, 2028.

States must verify work status at application and at renewal every six months. If someone can’t show compliance or an applicable exemption, the state issues a noncompliance notice and the enrollee has 30 days to respond before losing coverage. The Congressional Budget Office estimated the provisions will cut federal Medicaid spending by $326 billion over ten years, with millions of current enrollees expected to lose coverage.

Immigration Enforcement and New Fees

The law directs roughly $170 billion toward border and immigration enforcement through fiscal year 2029. The largest allocations include $51.6 billion for border wall construction, facilities, and checkpoints; $45 billion for expanded immigration detention; and $29.9 billion for ICE enforcement and deportation, including 10,000 new ICE officers over five years.⁸

New mandatory fees also apply. Asylum applicants pay $100 to file plus $100 annually while their case is pending. Initial work permits for asylum seekers cost $550. Temporary Protected Status registration costs $500. A new $250 visa bond applies to nonimmigrant visas, refundable only after the visa expires and the holder shows full compliance. None of these fees can be waived. An additional $5,000 fee applies to people apprehended at the border without authorization and to those ordered removed in absentia.

The bill caps the number of immigration judges at 800 starting in November 2028, sets up a $10 billion state border security fund, and provides $3.5 billion in reimbursements to state and local governments for immigration enforcement costs dating back to January 21, 2021.

Energy Leasing on Federal Lands

Fossil fuel production on federal lands and waters expands substantially. In the Gulf of America, at least two offshore oil and gas lease sales are required each year through 2039, with the next sales set for March and August 2026. Alaska’s Cook Inlet Planning Area gets a minimum of six offshore lease sales from 2026 through 2032. Onshore, lease sales are required quarterly, and the Bureau of Land Management must lease nominated parcels within 18 months.⁹

Federal royalty rates for new offshore production fall to between 12.5% and 16.67%. Onshore royalties return to a 12.5% minimum, which Interior estimates will generate about 225 additional leases in 2026. The coal royalty rate drops from 12.5% to 7%, federal coal leasing resumes with a mandate to make 4 million acres of known reserves available, drilling permits now stay valid for four years, and the royalty on extracted methane is repealed.⁹ For renewables, the law removes fee discounts for wind and solar right-of-way permits on public lands.

Defense Spending

The bill adds more than $125 billion in defense funding for fiscal year 2025, spread across most branches and capability areas:

$29.2 billion for the naval shipbuilding industrial base.
$25.4 billion for hypersonic, cruise, air-to-air, and anti-ship missiles.
$24.4 billion for space-based intercept capabilities, sensors, and ground-based missile defense.
$16 billion for unmanned aerial systems and artificial intelligence integration.
$14.7 billion for nuclear defense resources and expanded B-21 bomber production.
$8.6 billion for aircraft modernization, including preventing retirement of certain planes like the F-22.
$7.5 billion for military quality-of-life items including barracks, housing allowances, tuition assistance, and child care.

Including this level of defense appropriations in a reconciliation bill, which usually deals with taxes and mandatory spending, is unusual.⁸

Debt Ceiling and Cost

To fund the spending and tax cuts, Congress raised the federal debt ceiling by $4 trillion, bringing the statutory limit to roughly $40 trillion. Without the increase, Treasury would have run out of borrowing authority within months. Fiscal watchdog groups criticized the size of the increase, pointing to the CBO’s projection that the combined tax cuts and spending add about $3.9 trillion to the debt over a decade. Supporters said extending the tax cuts would generate enough growth to partially offset the cost.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
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Internal Revenue Service. One, Big, Beautiful Bill Provisions
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Internal Revenue Service. One, Big, Beautiful Bill Act – Tax Deductions for Working Americans and Seniors
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House Ways and Means Committee. No Tax on Social Security – $63 Billion in Tax Relief for Americas Seniors
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The White House. Trump Accounts Give the Next Generation a Jump Start on Saving
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Internal Revenue Service. Qualified Business Income Deduction
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Internal Revenue Service. Whats New – Estate and Gift Tax
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Congress.gov. H.R.1 – 119th Congress – One Big Beautiful Bill Act
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U.S. Department of the Interior. Interior Department Advances Energy Dominance Through the One Big Beautiful Bill Act