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

The One Big Beautiful Bill Act, signed into law on July 4, 2025 as Public Law 119-21, makes the 2017 individual tax cuts permanent, adds new deductions for tips, overtime pay, and auto loan interest, raises the SALT deduction cap to $40,000, expands the child tax credit, overhauls Medicaid and SNAP eligibility, ends most clean energy tax credits, funds border security and defense, and raises the federal debt ceiling by $4 trillion. The Congressional Budget Office estimates the law will add roughly $3.4 trillion to the deficit over the next decade.¹ Here is what the law changes, provision by provision, and what the deadlines are.

Tax Rates and the Standard Deduction Are Now Permanent

The seven-bracket structure from the Tax Cuts and Jobs Act was scheduled to expire at the end of 2025, which would have restored a top rate of 39.6% and the older, less generous brackets. The new law locks the current rates in place. For 2026, the brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.²

The 2026 income thresholds are:

10%: up to $12,400 for single filers ($24,800 for married couples filing jointly)
12%: over $12,400 ($24,800 jointly)
22%: over $50,400 ($100,800 jointly)
24%: over $105,700 ($211,400 jointly)
32%: over $201,775 ($403,550 jointly)
35%: over $256,225 ($512,450 jointly)
37%: over $640,600 ($768,700 jointly)

The nearly doubled standard deduction is also permanent. For 2026, it is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for head of household filers. The personal exemption stays at zero, as it has been since 2018.

New Deductions for Tips, Overtime, and Auto Loans

Three new deductions are available whether or not you itemize. Each has its own income phaseout.

Tips

If you work in an occupation that customarily receives tips, you can deduct up to $25,000 in cash tips reported to your employer. The deduction phases out once your income exceeds $160,000, adjusted annually for inflation. Only cash tips reported for payroll tax purposes count. Social Security and Medicare taxes still apply to those tips.³

Overtime

You can deduct the premium portion of qualified overtime pay, generally the “half” in time-and-a-half required by the Fair Labor Standards Act. The maximum is $12,500 per year, or $25,000 for joint filers. The deduction phases out above $150,000 in modified adjusted gross income ($300,000 for joint filers).³

Auto Loan Interest

For tax years 2025 through 2028, you can deduct up to $10,000 per year in interest on a loan used to buy a new vehicle assembled in the United States. The vehicle must be for personal use, and you must be the first owner. Used cars, leases, and business vehicles do not qualify. The deduction phases out above $100,000 in modified adjusted gross income ($200,000 for joint filers), and you must include the vehicle identification number on your return each year you claim it.⁴

Bigger Child Tax Credit

The child tax credit rises from $2,000 to $2,500 per qualifying child under 17, phased in over two years: $2,200 for 2026, then $2,500 for 2027 and beyond. A portion stays refundable. The income phaseout thresholds remain at $200,000 for single filers and $400,000 for joint filers. Each qualifying child needs a valid Social Security number.⁵ The $500 non-refundable credit for other dependents continues under the same phaseouts.

SALT Cap Raised to $40,000

The state and local tax deduction cap jumps from $10,000 to $40,000. It covers property taxes combined with either state income or sales taxes, and it rises 1% each year through 2029. For higher earners, the cap phases down at 30 cents for every dollar of income above $500,000, and that phasedown threshold also increases 1% annually through 2029. At incomes well above $500,000, the cap effectively drops back toward the old $10,000 level.

Other itemized deduction rules from the 2017 law are now permanent. Mortgage interest is deductible on up to $750,000 of debt for loans taken after December 15, 2017 ($1 million for older grandfathered loans). Cash charitable gifts are deductible up to 60% of adjusted gross income. Unreimbursed medical expenses above 7.5% of AGI remain deductible if you itemize. Miscellaneous itemized deductions subject to the old 2% floor stay suspended, so unreimbursed employee expenses, tax prep fees, and investment advisory fees remain non-deductible.

Pass-Through and Business Provisions

The Section 199A deduction for owners of sole proprietorships, partnerships, and S-corporations is now permanent, and the rate rises from 20% to 23% starting in 2026.⁶ Restrictions on specified service businesses (law, medicine, consulting, financial services) still phase the deduction out above certain income thresholds.

The corporate tax rate stays at 21%.⁷ Other significant business changes:

100% bonus depreciation returns permanently for qualifying property placed in service after January 19, 2025, and applies to both new and used equipment.⁵
Domestic research and development costs can once again be deducted immediately, reversing the 2022 rule that required five-year amortization.
The business interest deduction calculation returns to the more generous formula that includes depreciation and amortization.
Qualified small business stock held more than three years qualifies for a 50% gain exclusion, four years for 75%. The per-issuer cap rises from $10 million to $15 million.

Estate and Gift Tax Exemption Rises to $15 Million

The federal estate and gift tax exemption climbs to $15,000,000 per person for 2026, up from $13.99 million in 2025.⁸ Without this law, the exemption would have dropped to roughly $7 million. A married couple using both exemptions can pass up to $30 million to heirs free of federal estate tax. The 40% top rate is unchanged. Some states impose their own estate or inheritance taxes with lower thresholds.

Trump Accounts for Children

For every eligible child born after December 31, 2024 and before January 1, 2029, the federal government deposits a one-time $1,000 contribution into a new tax-advantaged savings account. Parents and guardians can add up to $5,000 per year, and employers can contribute up to $2,500 per year without that amount becoming taxable to the employee. Accounts cannot be funded before July 4, 2026.⁹

Clean Energy Credits End on Tight Deadlines

Most clean energy tax credits are being terminated or accelerated toward phaseout. If a purchase you are planning depends on one of these credits, the windows are short:

Credits for new clean vehicles (Section 30D), used clean vehicles (Section 25E), and commercial clean vehicles (Section 45W) ended for any vehicle acquired after September 30, 2025.¹⁰
The energy efficient home improvement credit (Section 25C) and residential clean energy credit (Section 25D) ended for property placed in service or expenditures made after December 31, 2025.
The alternative fuel vehicle refueling property credit (Section 30C), which covers EV charging equipment, expires for property placed in service after June 30, 2026.
New wind and solar facilities beginning construction more than 12 months after enactment must be placed in service before 2028. A phaseout for remaining production credits begins after 2032 and reaches zero by 2036.

The solar investment tax credit for new projects starting construction after 2024 is reduced to 0%. Credits for carbon capture, clean fuel production, and advanced manufacturing see various modifications rather than outright elimination.

Medicaid Work Requirements and Verification

The largest spending cuts in the law hit Medicaid. The Congressional Budget Office estimates roughly $1 trillion in reduced federal Medicaid and CHIP spending over ten years.

Starting January 1, 2027, adults enrolled in Medicaid through the Affordable Care Act expansion must complete 80 hours per month of work, community service, or job training to keep coverage. States can start earlier. Exemptions apply to parents with children under 14, pregnant and postpartum individuals, and people with disabilities or serious medical conditions, among others. Enrollees who fall out of compliance get a 30-day notice period before losing coverage. States must verify work status or exemption eligibility at initial application and at least every six months at redetermination.

The law also puts $50 billion into rural hospital relief over five years. Starting in 2026, bronze-tier and catastrophic marketplace plans become HSA-compatible, and direct primary care arrangements can be paid from HSAs. Caps on repayment of excess advance premium tax credits are removed starting with 2026 returns.⁵

SNAP Cost-Sharing and Expanded Work Rules

Starting in fiscal year 2028, states must share in the cost of SNAP benefits based on their payment error rates. States with error rates below 6% pay nothing. States with higher error rates pay a share that scales up to 15% of benefit costs. The federal share of SNAP administrative costs drops from 50% to 25% starting in fiscal year 2027.

Work requirements expand to cover adults aged 55 through 64 and parents without children under 14. Exemptions previously available to veterans, people experiencing homelessness, and former foster youth are removed. Waivers for high-unemployment areas now require an unemployment rate of at least 10% and last only one year.

Border, Immigration, Defense, and the Debt Ceiling

The law allocates $46.5 billion for border wall construction and related infrastructure such as roads, cameras, lights, and sensors.¹¹ Additional funding goes to Immigration and Customs Enforcement for staffing, enforcement, and the 287(g) partnership program, and to the Department of Justice to hire immigration judges and prosecute immigration crimes. State and local governments must comply with federal immigration laws to receive certain new funding.

A new 1% excise tax on outbound remittance transfers takes effect January 1, 2026. Remittance providers must collect the tax at the time of transaction.⁵

Defense gets $150 billion in mandatory funding for readiness and weapons procurement.¹² The federal debt ceiling rises by $4 trillion, bringing the statutory limit to roughly $40 trillion.¹³

What to Watch on the Calendar

For most individual filers, 2026 returns will look much like recent years, with a few additions. If you earn tips or overtime, or if you bought a qualifying new American-assembled car on a loan, check the new deductions. If you live in a high-tax state, the higher SALT cap could save you thousands.

The provisions that need attention now are the ones tied to dates. The clean vehicle credits already closed on September 30, 2025, and the home energy credits closed on December 31, 2025. The auto loan interest deduction sunsets after 2028. Medicaid work requirements begin January 1, 2027. SNAP cost-sharing starts in fiscal year 2028. The IRS is still issuing implementation guidance for several of the new deductions, so check for updates before filing.⁵

1
Congressional Budget Office. Estimated Budgetary Effects of Public Law 119-21
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
3
Internal Revenue Service. How to Take Advantage of No Tax on Tips and Overtime
4
Internal Revenue Service. One Big Beautiful Bill Act – Tax Deductions for Working Americans and Seniors
5
Internal Revenue Service. One Big Beautiful Bill Provisions
6
Internal Revenue Service. Qualified Business Income Deduction
7
Office of the Law Revision Counsel. 26 U.S. Code 11 – Tax Imposed
8
Internal Revenue Service. What’s New – Estate and Gift Tax
9
The White House. Trump Accounts Give the Next Generation a Jump Start on Saving
10
Internal Revenue Service. FAQs for Modification of Clean Energy Credits Under Public Law 119-21
11
U.S. Senate Committee on the Judiciary. The One Big Beautiful Bill Makes America Safe Again
12
House Armed Services Committee. One Big Beautiful Bill
13
Brookings Institution. What Is the Federal Debt Ceiling?