What Is in the Big Beautiful Bill: Taxes, Medicaid, and SNAP

The One Big Beautiful Bill Act (P.L. 119-21), signed into law on July 4, 2025, is a sweeping budget reconciliation package that cuts taxes for workers, families, and seniors; funds the largest border security and immigration enforcement buildup in U.S. history; adds $156.2 billion in defense spending; imposes work requirements on Medicaid and tightens SNAP; ends most clean energy tax credits; and raises the federal debt ceiling by $4 trillion. The Congressional Budget Office estimates it will add roughly $4.1 trillion to federal deficits over the next decade.

Tax Breaks for Workers and Retirees

Three provisions aimed at paychecks stand out.

Tipped workers can deduct up to $25,000 in qualified tips from federal taxable income each year. Qualified tips means voluntary cash or charged tips from customers, including amounts received through tip-sharing arrangements. The deduction phases out once modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). Self-employed workers can claim it too, but only up to the net income from the business where the tips were earned.¹

Overtime pay gets a similar deduction with a lower cap. You can deduct the premium portion of overtime — the “half” in time-and-a-half — up to $12,500 per year ($25,000 for joint filers), subject to the same $150,000/$300,000 phase-out. The overtime must be compensation required under the Fair Labor Standards Act and reported on your W-2 or 1099.¹

Seniors get a new deduction for Social Security benefits. The White House says the change will eliminate federal income tax on Social Security for roughly 88% of recipients.² A single filer receiving the average retirement benefit of about $24,000 would see deductions exceed taxable Social Security income entirely. Married couples who each receive the average benefit see the same result.

Child, Family, and Adoption Provisions

The child tax credit rises to $2,200 per child in 2026, up from the $2,000 amount set by the 2017 tax law. The refundable portion is capped at $1,700 per child and still requires earnings above $2,500 before it begins to phase in. Families with very low incomes continue to receive less than the full credit because of this earnings-based formula.

The law also creates a new tax-advantaged savings account for children, officially called “Trump Accounts.” For every child born between January 1, 2025, and December 31, 2028, who is a U.S. citizen with a Social Security number, the federal government deposits a one-time $1,000 contribution. Parents, guardians, or others can then contribute up to $5,000 per year until the child turns 18. Employers can add up to $2,500 per year tax-free, though employer contributions count against the $5,000 annual limit. Investments are restricted to broad-based market index funds and grow tax-deferred.³ Withdrawals are generally prohibited until the calendar year the child turns 18, and the accounts follow rules similar to traditional IRAs, with exceptions for qualified higher education expenses and first-time home purchases.⁴ Funding cannot begin before July 4, 2026.

Adoptive parents also benefit. For tax years after December 31, 2024, up to $5,000 of the adoption tax credit becomes refundable, meaning families can receive that portion as a refund even without a matching tax liability.⁴

SALT Cap and the 2017 Tax Law Extensions

The state and local tax (SALT) deduction cap set by the 2017 Tax Cuts and Jobs Act was scheduled to expire after 2025. The Big Beautiful Bill keeps the cap but raises it. Starting in 2025, you can deduct up to $40,000 in state and local taxes if you itemize ($20,000 if married filing separately). The deduction begins to shrink once modified adjusted gross income exceeds $500,000 ($250,000 for married filing separately).⁵ This helps taxpayers in high-tax states who were previously limited to $10,000.

Beyond SALT, the law extends many 2017 tax provisions that were set to expire at the end of 2025. Without the extension, individual rates would have reverted to higher pre-2017 levels, the standard deduction would have roughly halved, and the estate tax exemption would have dropped significantly. Extending them prevents what would have been a substantial tax increase for most filers in 2026.

Business Tax Provisions

Several business provisions that had expired or were winding down are restored. The most significant is the return of 100% bonus depreciation: for qualifying business property purchased and placed in service after January 19, 2025, the full cost can be deducted in the first year rather than spread over multiple years.⁴

Domestic research and development gets similar treatment. For tax years after December 31, 2024, businesses can once again deduct research and experimental expenditures immediately rather than spreading them over five years. The paid family and medical leave tax credit is made permanent, and the minimum employee tenure required for employers claiming it drops from one year to six months. A separate provision lets eligible agricultural and rural lenders exclude 25% of interest income from qualifying loans from federal taxable income.⁴

Clean Energy Credits That Are Ending

The law terminates or accelerates the phase-out of nearly every clean energy tax credit created or expanded by the 2022 Inflation Reduction Act. The consumer-facing deadlines are the ones to watch:

The new clean vehicle credit (Section 30D), the used clean vehicle credit (Section 25E), and the commercial clean vehicle credit (Section 45W) ended for vehicles acquired after September 30, 2025.
The energy efficient home improvement credit (Section 25C) and the residential clean energy credit (Section 25D), which covered solar panels, heat pumps, and similar upgrades, are no longer available for property placed in service or expenditures made after December 31, 2025.
The alternative fuel vehicle refueling property credit (Section 30C), used for EV chargers, expires after June 30, 2026.⁴

On the production side, wind and solar projects lose eligibility for the clean electricity production and investment credits if placed in service after December 31, 2027, unless construction began within 12 months of the law’s enactment. The clean hydrogen production credit is accelerated: projects must begin construction by the end of 2027 to qualify. Nuclear energy keeps its credit eligibility through the original Inflation Reduction Act timelines, and the law adds “nuclear energy communities” to the definition of energy communities that qualify for bonus credits. The clean fuel production credit gets a two-year extension through 2029, at reduced rates for sustainable aviation fuel.

Immigration and Border Security

The immigration provisions are the single largest border security investment in U.S. history. The law provides $46.5 billion for border wall construction and related infrastructure, including access roads, cameras, lighting, and sensors.⁶

Enforcement expands sharply. The law calls for hiring at least 10,000 new ICE personnel, maintaining detention capacity for an average daily population of at least 100,000, and funding at least one million removals per year. The Department of Justice receives funding to hire additional immigration judges to work through the case backlog.⁶

Other enforcement pieces:

A BIDEN Reimbursement Fund lets states seek reimbursement for costs they incurred investigating, locating, or detaining certain immigrants between January 20, 2021, and September 30, 2028.
Funding is provided to collect DNA and fingerprints from migrants attempting to enter without a valid visa, aimed at preventing child exploitation.
The 287(g) program, which deputizes willing state and local law enforcement to assist ICE, is expanded.
State and local governments must comply with federal immigration laws to receive additional funding made available under the law.⁶

The law also imposes a tax on remittances sent abroad by noncitizens.

Defense Spending

Title II directs $156.2 billion in mandatory defense funding. The largest categories include $29.2 billion for shipbuilding, $25.4 billion for munitions and supply chain resiliency, $24.4 billion for integrated air and missile defense, $16.3 billion for armed forces readiness, $16 billion for low-cost weapons production, $14.7 billion for nuclear forces, $12.7 billion for Indo-Pacific Command capabilities, $8.6 billion for air superiority, and $7.5 billion for military personnel quality of life. All funds carry a five-year obligation window through September 30, 2029, and can be spent through fiscal year 2034.⁷

Medicaid Work Requirements

Starting no later than January 1, 2027, adults who gained coverage through the Affordable Care Act’s Medicaid expansion must complete 80 hours per month of work or community service to keep their coverage. States can implement the requirement earlier if they choose.

Mandatory exemptions cover parents and caregivers of children age 13 and under, individuals who are pregnant or postpartum, and people classified as “medically frail,” a category that includes individuals with disabilities, substance use disorders, disabling mental health conditions, and serious or complex medical conditions. States may also grant short-term hardship exceptions.

States must check work or exemption status at application and every six months at redetermination, looking back one to three months to confirm compliance. When a state cannot verify that someone meets the requirements, it must issue a notice of noncompliance and give the person 30 days to demonstrate compliance before disenrolling them.

The Congressional Budget Office estimates the work requirements will reduce federal Medicaid spending by $326 billion over ten years, making them the law’s largest single source of Medicaid savings.

SNAP and Food Assistance

Most adults will receive Supplemental Nutrition Assistance Program benefits for only three months within a 36-month period unless they work at least 20 hours per week or participate in an approved work program. Exemptions apply to people under 18 or over 65, individuals with disabilities, caregivers of children under 14, and pregnant individuals.

Eligibility by immigration status narrows. As of July 4, 2025, eligible categories include U.S. citizens, U.S. nationals, lawful permanent residents, Cuban and Haitian entrants, and Compact of Free Association migrants. Immigrants with other humanitarian protections, including refugees, asylees, and trafficking survivors, lose SNAP eligibility.

Benefit calculation also changes. Most households must now document their actual utility expenses rather than using a standard utility allowance, which often resulted in higher benefit amounts. Households with an elderly or disabled member are exempt and can continue using the standard allowance.

Health Coverage Changes Beyond Medicaid

Health Savings Accounts expand. Starting January 1, 2026, bronze-level and catastrophic health insurance plans qualify as HSA-compatible, opening HSA eligibility to people in lower-premium plans that previously didn’t qualify. People enrolled in direct primary care arrangements can contribute to an HSA and use the funds tax-free to pay their periodic direct primary care fees.⁴ Telehealth services are permanently allowed before meeting a high-deductible health plan’s deductible.

The enhanced premium tax credits for Affordable Care Act marketplace plans, originally expanded in 2021 and extended through 2025, were not renewed. Those enhanced subsidies expired on January 1, 2026. Marketplace premiums effectively rise for many enrollees as the subsidies revert to their pre-2021 levels and the income cap of 400% of the federal poverty level is reinstated. The law also removes the previous cap on how much you must repay if you received too much in advance premium tax credits, adding financial risk for anyone whose income fluctuates during the year.⁴

Education and Student Loans

A new Federal Scholarship Tax Credit takes effect January 1, 2027. Individual taxpayers can claim a credit of up to $1,700 for cash contributions to qualifying Scholarship Granting Organizations, which distribute scholarship funds for K-12 private school tuition and other educational purposes.⁴

529 education savings accounts cover a broader range of expenses. New categories of tax-free withdrawals include homeschool costs such as curriculum, books, and online resources, along with tutoring, educational therapies for students with disabilities, dual enrollment fees, and exam costs such as SAT fees. The accounts can also be used for workforce training, apprenticeships, and non-degree credentials under the Workforce Innovation and Opportunity Act. Tax-free rollovers from 529 plans to ABLE accounts, which support disability-related expenses, are made permanent.

Federal student loans see structural changes. The law eliminates the partial financial hardship requirement for income-based repayment (IBR), so more borrowers can access the plan, which sets payments at 10% of discretionary income over 20 years with any remaining balance canceled. Parent PLUS borrowers who consolidate can now also enroll in IBR. Part-time students face reduced annual borrowing limits proportional to their enrollment intensity.⁸

A new Repayment Assistance Plan must take effect no later than July 1, 2026, and payments under it count toward Public Service Loan Forgiveness. The Biden administration’s borrower defense to repayment regulations are rolled back; the earlier 2020 regulations are reinstated for loans originated before July 1, 2035.⁸

Debt Ceiling and Deficit Impact

Congress raised the federal debt ceiling by $4 trillion to accommodate the law’s spending. The Congressional Budget Office estimates the law increases budget deficits by $4.1 trillion over the 2025–2034 period. If ten of the law’s temporary provisions were made permanent, as many expect Congress to attempt, the total deficit impact would reach roughly $5 trillion over the same window.

Supporters argue the tax cuts will accelerate economic growth enough to offset a meaningful share of the cost. Critics point out that CBO’s estimates already account for economic feedback effects. The Big Beautiful Bill is one of the largest single pieces of deficit-financed legislation in American history.

1
Internal Revenue Service. How to Take Advantage of No Tax on Tips and Overtime
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The White House. No Tax on Social Security Is a Reality in the One Big Beautiful Bill
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Internal Revenue Service. Trump Accounts
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Internal Revenue Service. One Big Beautiful Bill Provisions
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Internal Revenue Service. How to Update Withholding to Account for Tax Law Changes for 2025
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U.S. Senate Committee on the Judiciary. The One Big Beautiful Bill Makes America Safe Again
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Congress.gov. Defense Funding in the 2025 Reconciliation Law
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Federal Student Aid. Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act