The One Big Beautiful Bill was passed on July 4, 2025. With its passage, several key tax, education, and student loan changes were made. Let’s explore them.
Extension of the 2017 Tax Cuts
Cuts to the marginal tax rates for individuals and corporations from the 2017 legislation were set to expire. This new bill makes those cuts permanent.
Standard Deduction
The 2017 law increased the standard deduction and removed the personal exemption. This simplified tax filing for many, as people who would have otherwise itemized their deductions no longer needed to (they simply took the much higher standard deduction).
Beginning with the 2025 tax year, the standard deduction increases to $15,750 for single filers and $31,500 for married couples filing jointly.
Senior Deduction
For individual taxpayers aged 65 or older, there is a temporary $6,000 deduction available to you. It begins to phase out when modified adjusted gross income (MAGI) exceeds $75,000 ($150,000 for joint returns). It can be claimed even if you take the standard deduction.
Child Tax Credit
Typically, the best forms of tax reprieve come in the form of credits (credits reduce the actual amount of tax owed, as opposed to deductions which reduce your taxable income). This bill increased the child tax credit to $2,200 per child, with the credit amount indexed to inflation.
It also made permanent the increase in income phaseout thresholds ($200,000 for individuals, $400,000 for joint returns).
Child and Dependent Care Credit/ Dependent Care Assistance
Taken from the Journal of Accountancy: “The act permanently increases the amount of the child and dependent care tax credit from 35% to 50% of qualifying expenses. The credit rate phases down for taxpayers with adjusted gross income (AGI) over $15,000. It will be reduced by 1 percentage point (but not below 35%) for each $2,000 that the taxpayer’s AGI exceeds $15,000. It will then be further reduced by (but not below 20%) 1 percentage point for each $2,000 ($4,000 for joint returns) that their AGI exceeds $75,000 ($150,000 for joint returns).”
Additionally, the maximum amount that can be excluded from income for dependent care expenses (e.g. daycare) increases from $5,000 to $7,500. As someone who uses an employer-offered Dependent Care Flexible Spending Account (FSA), I expect to take advantage of this increase moving forward.
It’s worth noting here that usage of a Dependent Care FSA impacts your ability to take advantage of the Child and Dependent Care Credit. In my case, and for many others, maximizing contributions to a Dependent Care FSA provides a greater tax benefit than taking the credit does. Be aware that many employers do not offer this form of FSA, and the credit may be your only option.
No Tax on Tips
There is a new, temporary $25,000 deduction for qualified tips received by an individual in select occupations that customarily and regularly receive tips. The IRS will publish a list of qualifying occupations later this year.
No Tax on Overtime
A new, temporary deduction of up to $12,500 ($25,000 for joint filers) is provided for qualified overtime compensation.
Notably, it is available to taxpayers who take the standard deduction.
SALT Cap Raised
An important provision for those living in high-tax states, the bill increases the limit of the federal deduction for the state and local taxes you pay. The new deduction cap, $40,000, is a significant increase over the $10,000 implemented in the 2017 legislation. This new amount does adjust for inflation, and beginning in 2030, it will revert back to the current $10,000.
The deduction does phase down for those with a MAGI above $500,000, which will also be adjusted for inflation.
Trump Accounts
One of the more unique inclusions in the bill is the new individual retirement account for minors. Dubbed “Trump accounts”, these IRAs for children may only receive contributions in calendar years before the beneficiary turns 18. Contributions will be capped at $5,000 per year and allowable investments would generally be mutual funds and index-tracking ETFs.
As part of the pilot program, a $1,000 tax credit is available for those opening accounts for children born between Jan. 1, 2025, and Dec. 31, 2028.
Business Deduction
The Sec. 199A qualified business income (QBI) deduction of 20% becomes permanent.
No Tax on Car Loan Interest
A new break for car buyers: between 2025 and 2028, qualified passenger vehicle loan interest will be excluded from the definition of “personal interest”. The exclusion is capped at $10,000 per year and phases out when MAGI exceeds $100,000 ($200,000 for married couples filing jointly).
In order to qualify, the vehicle being purchased must have undergone final assembly in the United States.
Education and Student Loans
529 Plan Updates
Expenses incurred as a result of elementary and secondary school attendance are now reimbursable. Additionally, “qualified postsecondary credentialing expenses” are now eligible for reimbursement. Be sure to check the IRS website for the exact language surrounding permissibility.
Student Loans and Repayment Plans
Income-based repayment plans are undergoing an overhaul. Eventually, ICR, PAYE and SAVE plans will phaseout and will be replaced by the Repayment Assistance Plan. Under this new plan, borrowers’ monthly payments will be set at 1% to 10% of income, with the remaining balance forgiven after 30 years of payments.
A second, standard repayment plan was also established, which fixes payments for 10 to 25 years based on the original balance.
Additional key points:
- Borrowers will no longer need to have partial financial hardship in order to qualify for an income-based repayment plan.
- The graduate PLUS program was eliminated, which historically allowed borrowers attending graduate and professional schools to borrow the full cost of attendance. As a result, there will be new limits on the amount of federal student loans a graduate student may take out.
- Parent PLUS borrowers must be aware of critical dates in order to qualify for optimal repayment plan options.
For a great breakdown on the changes to student loans, I recommend this article from Student Loan Borrower Assistance.
Final Thoughts
This bill certainly brings about the biggest changes to your taxes and personal finances since the 2017 law, with notable impacts to parents of children, student loan borrowers and residents of high-tax states.
Which provisions are you most looking forward to? Are there any changes that you are displeased with? Let us know in the comments, or on social media.
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