Trump’s income tax plan, enacted as the One Big Beautiful Bill Act on July 4, 2025, makes the lower tax brackets from the 2017 Tax Cuts and Jobs Act permanent and adds new deductions for tipped income, overtime pay, car loan interest, and Social Security benefits. It also quadruples the state and local tax deduction cap from $10,000 to roughly $40,000. For most filers, the practical result starting with the 2025 and 2026 tax years is a lower federal tax bill than what would have applied if the old rates had been allowed to expire.
Lower Tax Brackets Are Now Permanent
The seven-bracket structure with a top rate of 37% was scheduled to expire on December 31, 2025. Had that happened, the top rate would have jumped back to 39.6% and every bracket below it would have shifted upward. The new law strips out the sunset dates. The rates are now a permanent part of the code, with the thresholds adjusting for inflation each year.
For 2026, single filers hit the 10% bracket up to $12,400, then 12% to $50,400, 22% to $105,700, 24% to $201,775, 32% to $256,225, 35% to $640,600, and 37% above that. Married couples filing jointly get roughly doubled thresholds: the 10% bracket runs to $24,800, the 12% bracket to $100,800, and the 37% rate begins above $768,700.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One Big Beautiful Bill
The standard deduction, which the TCJA nearly doubled in 2018, is also permanent at the elevated level. For 2026 it stands at $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One Big Beautiful Bill Because the deduction is this large, most filers won’t itemize. Charitable contributions, mortgage interest, and other itemized write-offs only produce a benefit if they collectively exceed the standard deduction.
SALT Deduction Cap Raised to About $40,000
If you itemize and live in a state with high income or property taxes, this is the biggest dollar change in the law. The state and local tax deduction, capped at $10,000 under the TCJA, now allows most filers to deduct up to $40,400 in 2026. Married couples filing separately get half that, $20,200. The deduction covers state income taxes, local property taxes, or state sales taxes paid during the year.
Deduction for Tipped Income
Tipped workers can now deduct up to $25,000 in qualified tips from federal income tax each year. The deduction is above-the-line, meaning you can claim it whether you take the standard deduction or itemize, and it’s available to both employees and self-employed workers.2Internal Revenue Service. How to Take Advantage of No Tax on Tips and Overtime
To qualify, tips must be voluntary payments from customers, paid in cash or charged to a card, in an occupation where tipping is customary. Wait staff, bartenders, salon workers, personal trainers, and gig economy workers are among those eligible. Mandatory service charges generally don’t count unless the customer had the option to change or remove the charge. The tips need to be documented on a Form W-2, 1099-NEC, 1099-MISC, 1099-K, or reported by you on Form 4137.2Internal Revenue Service. How to Take Advantage of No Tax on Tips and Overtime
The deduction phases out once modified adjusted gross income exceeds $150,000 for single filers or $300,000 for joint filers, shrinking by $100 for every $1,000 above those thresholds. Self-employed workers can’t deduct more than their net income from the business where the tips were earned. You also need a valid Social Security number; filers using only an ITIN are not eligible.
One important boundary: this is an income tax deduction, not a payroll tax exemption. Tips are still subject to Social Security and Medicare taxes, so the savings are smaller than the “no tax on tips” phrase suggests.3Internal Revenue Service. Publication 531 – Reporting Tip Income
Deduction for Overtime Pay
A separate deduction covers the premium portion of overtime pay for hourly and non-exempt workers. If you earn time-and-a-half for hours worked beyond 40 in a week under the Fair Labor Standards Act, the extra “half” above your regular rate qualifies. The maximum annual deduction is $12,500 for single filers and $25,000 for joint filers.2Internal Revenue Service. How to Take Advantage of No Tax on Tips and Overtime
The same income phase-out kicks in above $150,000 for single filers and $300,000 for joint filers, and the deduction is available whether or not you itemize. Overtime pay must be reported on a Form W-2 or 1099 to qualify. Salaried employees who are exempt from FLSA overtime don’t benefit, because their extra hours aren’t classified as overtime under federal labor law.
Social Security Benefits for Seniors
Under the prior rules, once combined income exceeded $25,000 for a single filer or $32,000 for a married couple filing jointly, part of your Social Security benefits became taxable, with up to 85% counted at higher income levels.4Internal Revenue Service. IRS Reminds Taxpayers Their Social Security Benefits May Be Taxable
The new law creates an additional deduction for Social Security income that, combined with the larger standard deduction, wipes out federal tax on benefits for most recipients. A White House analysis estimated that roughly 88% of seniors receiving Social Security will owe no federal income tax on those benefits under the new law.5The White House. No Tax on Social Security Is a Reality in the One Big Beautiful Bill A single retiree collecting the roughly $24,000 average annual benefit will have deductions that exceed their taxable Social Security income.
This is not a full repeal for every retiree. If you have substantial income from a pension, investments, or continued employment, a portion of your benefits can still be taxed. But for the typical retiree whose Social Security check is the main income, the federal tax on those benefits is now functionally zero.
Car Loan Interest Deduction
A new deduction allows you to write off up to $10,000 in interest each year on a qualifying auto loan. The rules are narrow. The vehicle must be new, purchased for personal use, and have undergone final assembly in the United States. Leased vehicles and used cars don’t qualify. The loan must have been originated after December 31, 2024, and the deduction is available for tax years 2025 through 2028.6Internal Revenue Service. One Big Beautiful Bill Act – Tax Deductions for Working Americans and Seniors
Eligible vehicles include cars, minivans, vans, SUVs, pickup trucks, and motorcycles with a gross vehicle weight under 14,000 pounds. You can verify assembly location using the NHTSA’s VIN decoder or the vehicle information label on the lot. The VIN must appear on your return in any year you claim the deduction. Interest on a refinanced qualifying loan generally remains eligible. The deduction phases out above $100,000 in modified adjusted gross income for single filers and $200,000 for joint filers, and both itemizers and standard-deduction filers can claim it.
Child Tax Credit
The maximum Child Tax Credit rises from $2,000 to $2,200 per child. Up to $1,700 per child is refundable, which means you can receive it even if you owe no federal income tax. The refundable portion is calculated from earnings above $2,500, so families with very low income may not get the full amount. The existing income phase-outs from the TCJA carry over: the credit begins reducing above $200,000 for single filers and $400,000 for joint filers.
Estate and Gift Tax Exemption
The federal estate and gift tax exemption jumps to $15,000,000 per individual for 2026, with inflation adjustments beginning in 2027.7Internal Revenue Service. What’s New – Estate and Gift Tax A married couple can pass up to $30,000,000 to heirs free of federal estate tax. Amounts above the exemption are still taxed at 40%. The prior TCJA exemption of roughly $13 million per person was set to be cut in half after 2025; the new law makes the higher amount permanent and raises it further.
If You Own a Pass-Through Business
The Section 199A deduction for sole proprietors, partnerships, and S corporations was set to expire on December 31, 2025.8Internal Revenue Service. Qualified Business Income Deduction The new law makes it permanent and raises the deduction from 20% to 23% of qualified business income. Income-based limits and the restrictions on certain service businesses at higher income levels remain in place.9Office of the Law Revision Counsel. 26 U.S. Code 199A – Qualified Business Income
Full 100% bonus depreciation is also back on a permanent basis. Businesses can deduct the entire cost of qualifying equipment, machinery, and other capital purchases in the year they’re placed in service, instead of stretching the write-off over several years. This applies to qualified property acquired after January 19, 2025.10Internal Revenue Service. One Big Beautiful Bill Provisions
Clean Energy Credits Are Narrower
If you were counting on tax credits from the Inflation Reduction Act for a clean energy project, the timelines have tightened. Wind and solar projects must either begin construction before July 5, 2026, or start producing electricity before January 1, 2028, to receive the full clean electricity production and investment tax credits. Other zero-emission electricity facilities have until 2033 to begin construction.11Library of Congress. IRA Tax Credit Repeal in the FY2025 Reconciliation Law – Part 1
The law also adds foreign entity restrictions that can disqualify projects tied to certain foreign components or ownership structures. The advanced manufacturing production credit phases out faster for wind components and critical minerals. Credits for carbon oxide sequestration were increased by roughly 40% for reused carbon but now carry the same foreign entity limits. The credits remain on the books; they simply cover fewer projects and fewer buyers than before.11Library of Congress. IRA Tax Credit Repeal in the FY2025 Reconciliation Law – Part 1