Text of Senate Tax Bill: SALT Cap, Tips, and Medicaid Cuts

The One Big Beautiful Bill Act, signed by President Trump on July 4, 2025, is a budget reconciliation law that permanently extends the 2017 Tax Cuts and Jobs Act, adds temporary deductions for tips, overtime, car loan interest, and seniors, creates a new children’s savings account, raises the state and local tax deduction cap through 2029, cuts roughly $1 trillion from Medicaid, funds border and immigration enforcement, and lifts the federal debt ceiling by $5 trillion.¹² The Senate passed its version 50–50 on July 1, 2025, with Vice President JD Vance breaking the tie, and the House adopted the Senate text without changes on July 3.

The 2017 Tax Cuts Made Permanent

Most of the individual tax rules that were set to expire at the end of 2025 are now permanent. That includes the lower income tax brackets, the higher standard deduction, the repeal of personal exemptions, the larger child tax credit, higher Alternative Minimum Tax thresholds, the caps on mortgage interest and miscellaneous itemized deductions, and the permanent repeal of the “Pease” limitation on itemized deductions.³ For 2025, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly.²

The estate and gift tax exclusion rises permanently to $15 million per individual beginning in 2026, indexed for inflation thereafter. The generation-skipping transfer tax exemption moves to the same level.⁴

Business owners get permanent 100 percent bonus depreciation for qualifying property acquired after January 19, 2025, a permanent Section 199A deduction letting pass-through owners deduct 20 percent of qualified business income, and full expensing of domestic research and development costs. Foreign R&D still has to be amortized over 15 years.³⁵

No Tax on Tips, Overtime, or Car Loan Interest

Three new above-the-line deductions run from 2025 through 2028. Tipped workers can deduct up to $25,000 in qualifying tips. Workers covered by the Fair Labor Standards Act can deduct up to $12,500 in overtime pay, or $25,000 for joint filers. Both phase out for single filers earning over $150,000 and joint filers over $300,000.²

A separate deduction allows up to $10,000 per year in interest on a loan for a U.S.-assembled passenger vehicle. It phases out above $100,000 for single filers and $200,000 for joint filers.⁶

All three are retroactive to the start of 2025, so workers can recover taxes already paid on qualifying income earned this year.⁷

Senior Bonus Deduction

Taxpayers 65 and older get an extra $6,000 deduction from 2025 through 2028. It phases out at 6 percent of adjusted gross income above $75,000 for single filers and $150,000 for joint filers. The White House has said the deduction effectively eliminates income tax on Social Security benefits for about 88 percent of seniors.⁷⁶ The benefit is a deduction against income, not a change to how Social Security itself is taxed.

Child Tax Credit and Family Provisions

The child tax credit rises from $2,000 to $2,200 per child in 2025 and is indexed to inflation going forward. The refundable portion is now permanent.²

The child and dependent care tax credit rate moves permanently from 35 to 50 percent, and the dependent care assistance program contribution limit rises from $5,000 to $7,500. Up to $5,000 of the adoption tax credit is now refundable.²⁵

Trump Accounts for Children

The law creates a new tax-advantaged savings account for children under 18. Parents or others may contribute up to $5,000 a year (indexed to inflation after 2027), and employers may add up to $2,500 annually without that amount counting as taxable income to the employee.⁸

Money must be invested in stock mutual funds or ETFs tracking the S&P 500 or a similar U.S. stock index, and nothing can be withdrawn before the child turns 18. After 18 the account converts to a traditional IRA, which means the usual 10 percent early withdrawal penalty before 59½, with exceptions for education, home buying, adoption, and disaster relief.⁸⁹

A pilot puts $1,000 from the government into an account for each child born between January 1, 2025, and December 31, 2028, who has a Social Security number. Outside contributions can start on July 4, 2026. The IRS has reported that four million children have been signed up, with one million claiming the pilot deposit.¹⁰

SALT Deduction Cap Raised Through 2029

The state and local tax deduction cap, set at $10,000 by the 2017 law, is temporarily lifted. For 2025 it rises to $40,000. It goes to $40,400 in 2026 and grows by 1 percent a year through 2029, then reverts to $10,000 in 2030. The higher cap phases out for households with modified adjusted gross income above $500,000 in 2025, with that threshold also rising 1 percent a year.¹¹

Roughly 30 states let partnerships and S corporations pay state income tax at the entity level, letting owners get around the individual SALT cap. The law does not shut down those workarounds, but it does put a ceiling on the combined benefit: an owner’s total SALT deduction (personal plus pass-through) is capped at $10,000 plus the greater of $40,000 or 50 percent of the pass-through entity taxes paid on their behalf.¹²

Charitable Giving and HSAs

Non-itemizers gain a permanent above-the-line charitable deduction beginning in 2026: up to $1,000 for single filers and $2,000 for joint filers.⁶ Itemizers face a new floor: only charitable giving above 0.5 percent of income is deductible, and for corporations the floor is 1 percent.²

Health savings account eligibility expands on January 1, 2026, to cover people enrolled in bronze and catastrophic health plans and those using direct primary care arrangements.⁵

Starting in 2027, a federal tax credit of up to $1,700 per taxpayer is available for donations to state-recognized scholarship-granting organizations that fund K–12 scholarships for low- and middle-income families. States have to opt in and certify which organizations qualify.¹³

Clean Energy Credits Ending Early

Many Inflation Reduction Act credits shut down years ahead of schedule. Electric vehicle tax credits for new and used vehicles end after September 30, 2025. Residential energy efficiency credits expire after December 31, 2025.⁵

Wind and solar lose access to the technology-neutral clean electricity credit, though projects that start construction by June 2026 or are placed in service by the end of 2027 can still qualify. Other clean-energy technologies keep their credits for projects that begin construction before 2034, phasing down in 2034 and 2035 and ending in 2036. New credits were added for metallurgical coal and for nuclear facilities in areas with significant nuclear employment.¹⁴¹⁵

Medicaid Cuts and Work Requirements

The law cuts roughly $1 trillion in federal Medicaid spending over ten years. The Congressional Budget Office projected that the work-reporting requirements alone would cut spending by $344 billion and remove 4.8 million people from Medicaid, with total Medicaid coverage losses reaching 11.8 million over the decade.¹⁶

Able-bodied adults without dependents must work, train, attend school, or volunteer 20 hours a week to keep eligibility.¹⁷ Restrictions on state provider tax arrangements account for about $191 billion in savings, and limits on state-directed payments contribute another $149 billion.¹⁸ States can no longer waive eligibility for people with assets over $1 million, verification rules tighten, and Medicaid may not pay for abortion services.

Immigration Fees and Enforcement Funding

The law puts $170.7 billion into immigration and border enforcement, split among the Department of Homeland Security ($130.2 billion), the judiciary ($39.5 billion), and the Department of Defense ($1 billion), with the funds required to be spent by September 30, 2029. The largest line items are $46.6 billion for border wall construction, $45 billion for new immigration detention facilities, $29.9 billion for ICE enforcement and removal operations, and $10 billion for a new state border security fund.¹⁹

New fees run throughout the system: a $100 asylum application fee plus $100 annually while a case is pending, $550 for initial work permits, a $5,000 fee for people apprehended after entering unlawfully, and $900 for appeals of immigration judge decisions.¹⁹ A 1 percent excise tax on certain cash-based remittance transfers takes effect January 1, 2026.⁵ Byrne JAG law enforcement grant funding is restricted for jurisdictions the Attorney General designates as sanctuary cities.

Other Changes Worth Knowing

The agriculture title restructures SNAP, adding new work requirements and tying state matching contributions to payment error rates. The education title ends graduate PLUS loans, modifies student loan forgiveness and repayment terms, and updates Pell Grant eligibility. The energy title expands onshore and offshore oil and gas leasing. The environment title rescinds funding for the Greenhouse Gas Reduction Fund and other climate programs.²⁰

Fiscal Impact and Debt Ceiling

The Committee for a Responsible Federal Budget estimated the law adds $2.4 trillion to primary deficits from 2025 through 2034, rising to $3.0 trillion with interest costs. If the temporary provisions are eventually made permanent, the total debt impact could reach $5.0 trillion.²¹

Senate Finance Committee Chairman Crapo, using a current-policy baseline that treats extending the 2017 cuts as no new cost, said the tax title has a net revenue impact of $442 billion.²² The law also raises the statutory debt ceiling by $5 trillion, which the Committee for a Responsible Federal Budget has called the largest specified increase in history.²³

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