What It Is and How It May Impact You
It’s been impossible to turn on the news recently and not hear updates on the One Big Beautiful Act (OBBBA). The massive budget reconciliation bill was recently passed by both the House and the Senate by narrow margins. It’s a giant piece of legislation that covers a wide range of topics, including tax regulations, energy and the environment, immigration, healthcare, defense and national security, education, transportation and infrastructure, agriculture and rural development, and more.
Following is a brief overview of the bill’s provisions and how they may impact your financial plan.
What’s in the Bill
#1 – Tax provisions
The OBBBA includes the following tax provisions:
- Permanent extension of the 2017 tax cuts included in the Tax Cuts and Jobs Act (TCJA) 1,2 – The TCJA was passed during Trump’s first presidency and included many tax cuts that were scheduled to sunset at the end of 2025. If these provisions had been allowed to expire, 62% of taxpayers could have faced a tax increase.3 The OBBBA extends the TCJA tax cuts and maintains a current top income tax rate of 37%.
- An increased standard deduction threshold – There’s a $1,000 increase for individuals/$2,000 increase for those married filing jointly, plus a temporary $6,000 increase for seniors through 2028.
- No tax on overtime or tips – This provision, which runs through 2028, excludes those above certain income thresholds.
- Car loan interest deduction – This provision, which allows a deduction of up to $10,000 of auto loan interest for U.S.-made vehicles, expires in 2029.
- An increase in the child tax credit amount – There’s an increase of $200 for 2025 that will be adjusted for inflation in future years. This credit is limited to families with Social Security numbers.
- An increased state and local tax (SALT) deduction – This deduction was raised from $10,000 to $40,000, with a 1% increase in the cap each year through 2029 before returning to the $10,000 limit for 2030. The deduction is reduced for higher-income taxpayers.
- An increased estate tax exemption – This was increased from $13.99 million to $15 million for individuals and from $27.98 to $30 million for those married filing jointly.
- Savings accounts for newborns – These accounts will be funded with an initial $1,000 government contribution and are eligible to receive up to $5,000 per year in parental after-tax contributions.
- Small business deduction – This provision expands the Section 199A deduction for small businesses.
- Business incentives – These include reinstating 100% immediate expensing for machinery, equipment and R&D expenses and allowing full expensing for new factories (to encourage domestic manufacturing).
- Repeal of clean energy tax credits – This provision phases out incentives for electric cars, wind and solar energy.
#2 – Spending Cuts
To offset the tax benefits mentioned above, the OBBBA includes spending cuts to the following programs.
Medicaid
The OBBBA:
- Cuts $700 billion in Medicaid funding over 10 years.
- Implements new requirements, including 80 hours per month of work, education or service for able-bodied adults with no dependents (starting in 2026).4
- Eliminates benefits for an estimated 1.4 million undocumented immigrants.5
Supplemental Nutrition Assistance Program (SNAP)
The OBBBA:
- Reduces spending by $267 billion over 10 years.
- Expands work requirements for parents with children over age 7.
- Increases the work requirements age to 64.
- Shifts 5% of benefit costs and 75% of administrative costs to states beginning in 2028.6
Affordable Care Act (ACA) 7
The OBBBA:
- Ends automatic ACA reenrollment.
- Requires annual income and immigration status verification (starting in 2028).
- Allows certain premium subsidies to expire.
- Shortens open enrollment window by moving up the deadline to December 15.
Loan forgiveness
The OBBBA repeals the Biden-era student loan forgiveness program.
#3 – Border Security and Immigration 8,9
To support the Trump Administration’s crackdown on illegal immigration, the OBBBA includes the following border security and immigration provisions:
- Border wall funding – There’s an allocation of $46.5 billion for border wall construction, including 701 miles of primary wall and 900 miles of river barriers.
- Increased personnel – There’s funding for 10,000 new ICE agents, 5,000 customs officers and 3,000 border patrol agents, providing $4.1 billion for hiring expenses and $2 billion for bonuses.
- Deportation funding – The legislation provides $45 billion for ICE detention facilities and $14 billion for deportation expenses.
- Remittance tax – The legislation imposes tax on cash payments sent by non-citizens to their home countries.
#4 – Other Provisions
Additional provisions of the bill include:
- Air traffic control modernization – Funds are provided to improve aviation safety and efficiency.
- Coast Guard funding – Funding is increased to support the U.S. Coast Guard in protecting Arctic sovereignty and combatting illegal drugs and migration.
- Energy policy – Biden-era methane taxes are repealed, the permitting process for fossil fuel projects is streamlined and federal lands are opened for oil and gas development.
- Logging expansion – A 25% increase in national forest logging is allowed.
- Department of education – Plans are included for closing the U.S. Department of Education and shifting responsibilities to other departments.
- Firearms silencer tax repeal – The $200 excise tax on gun silencers is eliminated, and gun silencers are removed from the National Firearms Act.
- School vouchers – $20 billion in tax credits is provided for donations to voucher schools and capital gains tax exemptions for stock donations that support private education are allowed.
How the OBBBA May Impact Your Financial Plan
As you can see, the OBBBA’s more than 1,100 pages of legislation cover a wide range of issues. These changes may impact your financial plan in the following areas:
- Tax planning – The extension of the TCJA tax provisions, increased standard deduction, increased SALT threshold and small business deductions make it important to review your tax planning strategies to help ensure they continue to optimize tax efficiencies.
- Investment management – If you anticipate an increase in your income due to the tax cuts, you’ll want to make sure your investment strategies continue to meet your needs. Talk with your wealth manager about any necessary changes to your portfolio.
- Estate planning – Many individuals are breathing a sigh of relief knowing the lifetime gift and estate tax exemption won’t be reduced anytime soon. If you made changes to your estate plan in anticipation of the TCJA expiring, you may need to revisit your strategies in light of these legislative changes.
- Education planning – A key education planning aspect of the OBBBA is a change in 529 education savings accounts. These accounts previously limited K-12 spending to include only school tuition. The bill expands the permitted use of 529 funds to include K-12 expenses related to tutoring, textbooks, test preparation and online learning. It also allows these funds to be used for special education expenses, such as speech therapy, occupational therapy and adaptive learning software. The bill also allows nonprofit organizations to distribute scholarships that provide families with the flexibility to send their children to private or charter schools if those schools better meet their children’s needs.
The most important takeaway here is that it’s important to consult with your wealth manager to determine how provisions of the OBBBA may impact you. Your wealth manager can help implement any necessary changes to your financial plan to help ensure it continues to meet your needs.
