The Big Tax Bill — Passed July 4, 2025

Bottom Line.

There is something in this bill for everyone, not just the wealthy. The wealthy are not likely to be earning much in tips, so they are not helped by this part of the bill.
For all income levels, tax rates in 2026 remain the same as what you have become use to since 2017. The alternative was that they would increase to pre-2017 levels.
The biggest benefit for those who are considered wealthy is that it makes the estate tax exemption permanent and does not go back to the ridiculously small pre-2017 levels.
Some of the benefits are applicable only if you itemize.

So Called Tax Cuts

This bill keeps the income tax rates for singles and married couples unchanged from 2025. Without this bill, the tax cuts passed in 2017 would have expired at the end of 2025 — driving up taxes significantly for most households. Some call this a tax increase because the tax rates would have been lower if tax rates prior to 2017 were reestablished. I call this a “no change” since tax rates remain unchanged from what you have been use to since 2017.

Standard Deduction

The standard deduction increases slightly to $15,750 (from $15,000) for an individual and $31,500 (currently $30,000) for a married couple. My take-away is that with the higher deduction for everyone, the need to itemize further decreases. So, any new tax benefit which requires you to itemize won’t help you unless you itemize, which is now less likely.

Seniors get a Higher Tax Deduction

Seniors get an additional break of $6,000 deduction per person ($12,000 for a couple) for those 65 and older. This is up from $1,600 per person and $3,200 per couple. These higher amounts start to phase out for singles who earn $75,000 per year and for couples earning $150,000. It phases out altogether for singles who exceed $175,000 a year and couples after $250,000. This might be a nice income but don’t forget the definition of earnings. Your earnings include not only the income shown on your W-2, but dividends and capital gains from non-qualified (non IRAs) accounts.

Estate Tax and Gift Tax Exemption

The big thing here is that the estate and gift tax exemptions, which were about to expire at the end of 2025, now become permanent (unless changed by future legislation). It is increased to $15 million/person and $30 million for a married couple, beginning in 2026. These numbers will be indexed for inflation in the years following 2026, using 2025 as the new base year for those adjustments.

Note: Even if your estate is worth well under $15 million, your estate might have to pay a state estate tax. The higher limits do not apply to state estate taxes. In Washington state, there is only a $2 million/person deduction; married couples don’t automatically get to double this to $4 million without proper tax planning. (This is the full-employment rule for attorneys.)

State and local tax deduction (SALT)

The state and local tax deduction, known as SALT, provides a federal deduction for state and local income taxes and property taxes. Currently, there is a $10,000 limit on the SALT deduction through 2025. This increases to $40,000 starting in 2025 and will increase by 1% each year to account for inflation. The deduction begins to phase out, or decrease, after $500,000 of income. Starting in 2028, the SALT cap would revert to $10,000. This is a small window to get the SALT benefits. Further, to use the SALT deduction, you have to itemize, which is increasingly less likely.

It Pays to Have Children – or does it?

The legislation creates a tax-deferred investment account on behalf of children born from 2025 through 2028. (Again, this is not much of a window to reap the benefits.) The government will seed each account with $1,000.

Annual Contributions:

Parents and others can make additional contributions to the account, up to $5,000 per year. (Nice.)

$1,000 per Child vs. a 529 Plan?

You can receive $1,000 per child plus open a 529 Plan. If so, you might find it best to take the $1,000 and make any additional contributions to a 529 for the child. Here’s why:

$1,000 per Child Plan: You can only contribute a maximum of $5,000 per year to this plan.
529 Plan: There are more investment options with the 529 Plan and there’s a higher contribution limit.” (For 2025, a single person can deposit as much as $19,000 a year into a beneficiary’s 529 and married couples can contribute as much $38,000.)
Unknown: If the withdrawals from the $1,000 per child account can be used for more than primarily education. If so, it may be a better than the 529 Plan for some people. The 529 plan can only be used only for higher-education expenses.

Details and Limitations:

The account grows tax deferred.
The accounts will track a stock index, so you don’t have the flexibility you do with a 529 Plan.
Unknown: What stock index? The initial bill used the S&P 500 index as an example. Is there more than one?
No withdrawals are allowed before the child turns 18.
After age 18, the rules are unclear but appear the same as for an IRA — withdrawals are taxed like income, plus an additional 10 percent tax penalty on any withdrawals before age 59½ except for certain qualified uses.
While this plan and the 529 plan have tax advantages, this plan appears more favorable for long-term education.

Unclear Details

Various forms of the bill were proposed, including complex rules stating what when and how the withdrawals could be used.

Specific tax treatment of the account is not yet fully detailed, but it will offer some form of tax-advantaged growth. The goal is to introduce more Americans to investing and build wealth.
What will be the tax differences between this plan and a 529 Plan?
What can the withdrawals be used for? Any purpose after age 18 or only certain qualified ones, such as education or purchase of a home?

It Doesn’t Pay to Gamble

Gambling winnings are still taxable and losses can be used to off-set (reduce) your reported winnings. However, now only 90% of the losses can be used to off-set winnings rather than up to 100% of the losses.

If you managed to read down to this point and are tired of reading, you can probably stop here since the rest probably won’t affect you. (I know you will peak.)

Tipped Workers

Tax-free gratuities: Up to $25,000 of tip income per year can be deducted from taxation for workers earning as much as $150,000 ($300,000 for a couple). This benefit is only for years 2025 through 2028. You do not have to itemize deductions to claim this benefit. This deduction is an “above-the-line” deduction, meaning it reduces your taxable income but does not reduce your Adjusted Gross Income (AGI), and is available to all eligible taxpayers, even if they claim the standard deduction.

Medicaid Patients

Health Care for the Poor:

The bill slashes about $1 trillion from Medicaid. (Medicaid is not the same as Medicare. Medicaid is for the poor.) This is the largest cut in the program’s history — and at least 17 million Americans are projected to lose health coverage or insurance subsidies, according to the Congressional Budget Office.

Work Requirements:

The measure imposes work and reporting requirements for the first time on Medicaid recipients whose income is from 100 percent to 138 percent of the federal poverty level (roughly $32,000 to $44,000 for a family of four). These are people who became eligible for Medicaid under the 2010 Affordable Care Act’s expansion of the program. Able-bodied adults between 19 and 64 years old will have to prove they are working, volunteering or going to school at least 80 hours a month. The bill provides exemptions for certain groups, including those who are pregnant, disabled or taking care of dependent children 13 or younger. States have to put these requirements in place by Dec. 31, 2026.

States’ Requirements:

The bill requires states to do an extra eligibility check every six months, starting in 2027. That could open the door to people losing coverage midyear.