How the Trump Tax Plan Will Affect You

President Trump signed the One Big Beautiful Bill into law on July 4 after the House and Senate approved the legislation package earlier in the week. He pressured Republican lawmakers to pass it, referring to the bill as the “Largest Tax Cuts in History.” With the Tax Cuts and Jobs Act (TCJA) set to expire after 2025, this new tax and spending bill could significantly affect what you owe in taxes. Here’s a breakdown of how the legislation may impact your income, filing status and deductions.

Do you have questions about tax planning or financial planning in general? Speak with a financial advisor today.

Key Takeaways

• The new Trump tax and spending act raises the SALT deduction cap to $40,000 for married couples earning up to $500,000 through 2029, with a 30% phase-down for income over $500,000.
• The legislation keeps the TCJA tax brackets and the higher standard deduction, expands the senior deduction, raises the estate tax exemption, and exempts qualified tips and overtime from taxes.
• The Congressional Budget Office (CBO) said that the Senate bill “would increase deficits over the 2025‑2034 period by $3.4 trillion.” The CBO also estimated that the bill could leave 11.8 million uninsured by 2034, including 1.4 million with unverified immigration status losing coverage from state-funded programs.
• The Committee for a Responsible Federal Budget had a similar estimate for the original version of the House bill: It would add $3 trillion to the debt (with interest) over 10 years, and $5 trillion if all temporary parts become permanent.

Key Proposals for the One Big Beautiful Act

President Trump advanced his domestic agenda by signing a new tax and spending bill into law one day after the House passed it with a narrow vote (218-214) on July 3. All 212 Democrats and two Republicans — Thomas Massie (R-KY) and Brian Fitzpatrick (R-PA) — had voted against it. GOP leaders secured the votes after overnight negotiations to meet Trump’s July 4 signing deadline.

The House vote came only two days after the Senate approved a version of the bill on July 1 with Vice President JD Vance breaking a 50–50 tie in the chamber to pass the new Trump tax plan. Republican Senators Susan Collins (R-ME), Thom Tillis (R-NC) and Rand Paul (R-KY) voted against the legislation. None of the Senate Democrats supported it.

The current federal tax system includes many provisions that were enacted through the TCJA. It was signed into law in 2017, during President Trump’s first term. President Biden did not make direct changes to the TCJA, but he proposed adjustments aimed at rolling back parts of the law, especially provisions that benefit high earners and large businesses. The core of Trump’s TCJA provisions, however, have remained unchanged.

The TCJA permanently lowered corporate tax rates, but most individual tax cuts—like lower brackets, a bigger standard deduction and expanded credits—were set to end after 2025 unless Congress extended them.

House Republicans initially passed a version of the new tax plan on May 22. Overall, both versions of the bill in Congress proposed making several provisions from the TCJA permanent. These included maintaining lower individual tax rates, keeping the expanded standard deduction and preserving the qualified business income (QBI) deduction for pass-through entities. The plan also extended the child tax credit and offered seniors a tax break.

Another key proposal in the bill was the estate and gift tax exemption. Under the current law, the exemption amount was scheduled to drop by roughly half after 2025. The new Trump plan preserves the higher exemption threshold, allowing individuals to transfer more wealth tax-free through gifts or inheritances. This change maintains the current structure of estate planning for high-net-worth households.

The new legislation also reduces existing tax benefits. The plan rolls back clean energy credits and removes certain education and health-related deductions. For a deeper breakdown, we have divided the new Trump tax plan into three sections.

Permanent Extension of TCJA Provisions

The new Trump tax plan builds on the framework of the TCJA by making several temporary provisions permanent. These include maintaining lower individual income tax rates, keeping the larger standard deduction and continuing the expanded child tax credit. The plan also preserves the 20% deduction for QBI and current exemption levels under the alternative minimum tax (AMT). Additionally, it keeps the current estate and gift tax exemption in place, rather than allowing it to shrink after 2025.

Who Are the Winners and Losers?

Trump’s new tax plan focuses on maintaining broad tax relief while providing gains to business owners and high-net-worth households. Specifically, these changes could benefit some working families, and small business owners, as well as wealthy individuals with significant estates or investment income. But, taxpayers who do not qualify for these deductions or credits—such as those without dependents, not running a business, or not subject to the estate tax—may see fewer advantages.

New Tax Relief Measures

The new Trump tax plan introduces several relief measures aimed at reducing taxable income for some workers. Under the current law, income from tips and overtime is fully taxable. The legislation exempts qualified tips from federal income tax and make overtime fully deductible after 2025.

Retirees also hoped to get an exemption for Social Security benefits, as they get their benefits taxed once income crosses a certain threshold. But, the new Trump tax plan only offers them a tax break.

Finally, the plan allows taxpayers to deduct interest paid on auto loans, which is a deduction that is not currently available.

You should also note that the One Big Beautiful Act creates a permanent above-the-line deduction for charitable contributions made by taxpayers who do not itemize. It increases the deduction limit to $1,000 for individuals and $2,000 for joint filers, replacing the previous temporary provision that allowed a $300 or $600 deduction. This change applies to tax years beginning after December 31, 2025, allowing non-itemizers to claim a larger and ongoing deduction for eligible charitable donations.

Who Are the Winners and Losers?

These new tax relief measures could help ease tax burdens for certain service workers and hourly employees who would be exempt from paying taxes on qualified tips and overtime, as well as seniors and car buyers. However, the new plan does not offer relief to taxpayers who fall out of these targeted categories.

Revenue Offsets, Spending Cuts and Additional Provisions

The new Trump tax plan includes provisions to reduce federal spending and offset the cost of extending and expanding tax cuts. It repeals or phases out a range of clean energy tax credits, including those for electric vehicles and solar installations, which were introduced through President Biden’s Inflation Reduction Act. The plan also tightens rules for Medicaid and SNAP by adding federal work or community engagement requirements, expands SNAP work rules to older adults and shifts more administrative costs to the states. These changes reduce federal obligations.

At the same time, the proposed legislation eliminates federal funding for Planned Parenthood, cutting off support for reproductive health services currently covered under Title X and Medicaid. In contrast, it also introduces a new initiative—Trump savings accounts—that provides each newborn with a $1,000 tax-deferred account to be used for education, housing, or retirement.

Who Are the Winners and Losers?

These changes reflect a shift in focus, offering new savings accounts for families with newborns while reducing funding for programs like Medicaid, SNAP and Planned Parenthood. Low-income households could be affected if support is scaled back. Cutting the Medicaid provider tax to 3.5% may lead states to reduce optional benefits, lower payments to providers, or tighten eligibility. Businesses and individuals claiming clean energy tax credits may also see fewer benefits.

How Do Financial Experts Evaluate the One Big Beautiful Act?

Most of the tax cuts are expected to benefit higher-income households. The Congressional Budget Office (CBO) estimated that the Senate version of the bill would raise the federal deficit by $3.4 trillion over 10 years. That’s nearly $1 trillion more than the House-passed version, which the CBO previously projected would increase the deficit by $2.4 trillion. The Senate bill included no new revenue and reduced government spending by $1.2 trillion.

In addition to these tax and spending changes, the Senate bill was projected to leave 11.8 million more people uninsured by 2034. This includes 1.4 million noncitizens now covered under state-funded programs.

A report from the Urban Institute also estimated that expanded SNAP work requirements in the first House bill would cut 5.4 million people (2.7 million families) from monthly food benefits. This would be an average reduction of $254 per family.

Overall, the new Trump tax plan would raise the debt ceiling by $5 trillion, which is $1 trillion more than what was proposed in the first House bill. This table summarizes six key points from the CBO report:

An earlier CBO report from May 20 said that the new Trump tax plan would increase the federal deficit by $3.8 trillion in 10 years. And this contributed to a recent U.S. credit rating downgrade by Moody’s.

Comparatively, the Penn Wharton Budget Model said that the bill would increase the deficit by $4.3 trillion in 10 years. The estimate also forecasted the GDP to go up by 0.4% during same time span (and 0.7% in 30 years).

Experts also broke down how the new Trump tax plan would affect Americans economically. The Institute on Taxation and Economic Policy (ITEP) projected that the poorest 20% of Americans would get just 1% of the total tax cuts in 2026, while the richest 20% would get 68%. The top 5% alone would receive 44% of the cuts.

The Budget Lab at Yale University had a similar estimate: The Senate bill would cut average income for the bottom 20% by about $700 (2.9%), while raising it for the top 1% by about $30,000 (1.9%). This would make it slightly more regressive than the first House bill.

How Will the One Big Beautiful Act Affect Small Business?

While the One Big Beautiful Act preserves and expands provisions from the original TCJA tax framework, including reduced tax rates for pass-through entities and corporations, the Senate Committee on Small Business and Entrepreneurship says that most small businesses may not benefit significantly. Here are five things that the committee concluded:

• Minimal benefit from pass-through rate cuts. The act lowers the tax rate on pass-through business income, which President Trump claimed would help millions of small firms. However, 86% of small businesses already pay 25% or less in taxes, meaning most will see little or no gain. The majority of the benefits are expected to go to larger, more profitable firms structured as pass-throughs.
• Concentration of benefits among high earners. More than half of all pass-through income goes to the top 1% of earners. Under the bill, over 88% of the tax benefit for pass-throughs is expected to flow to the highest-income households. President Trump, who owns hundreds of pass-through entities, would be among those eligible for these benefits.
• Potential for new tax avoidance strategies. Critics warn that the new pass-through rules could function as a tax shelter, enabling high earners to avoid up to $129 billion in taxes over a decade. This could undermine funding for entitlement programs like Social Security and Medicare.
• Corporate tax cuts favor large firms. The bill also includes steep corporate tax cuts and new international rules that make it easier for multinational corporations to shift profits offshore. These changes do not help local small businesses, which are less able to exploit such structures.
• Increased deficit may limit support services. The legislation is projected to reduce federal revenues by nearly $1.5 trillion over 10 years. This could limit future public investment in infrastructure, workforce development and healthcare, which are areas that directly affect small business growth and employee benefits.

Brief History of the Current Trump Tax Law (TCJA 2018-2025)

In 2017, House Republicans and President Trump worked to introduce a tax bill that would simplify the tax system. The TCJA was unveiled on Nov. 2, 2017, calling for sweeping changes to the current tax law.

The House passed the final version of the bill on Dec. 20, 2017, with a final tally of 224-201. Twelve House GOP members and all Democrats opposed the legislation. Originally, the House passed the bill on Dec. 19, but another vote was necessary because several provisions of the bill reportedly violated Senate rules and needed to be removed. The Senate passed the corrected version of the bill in the early morning hours of Dec. 20, voting 51-48 along party lines. President Trump then signed the bill into law on Dec. 22, 2017.

Most of the tax changes in the TCJA went into effect in January 2018, for the 2018 tax year. That means the changes didn’t affect many 2017 tax returns (you filed 2017 taxes in early 2018). Employees didn’t see changes in their paycheck withholding until February 2018.

Trump Tax Law Brackets: Seven in Total

Trump’s 2017 tax plan originally called for cutting the number of tax brackets in the federal income tax system from seven to four, but the final version of the TCJA maintained the seven brackets. It did, however, change their rates.

Previously, the tax brackets went up to a top rate of 39.6%. The new tax brackets, which applied as of January 2018, have rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%. These are the rates that determine your tax bill and still apply in 2025.

The table below breaks down the brackets for single and joint filers. If you use have a different filing status, make sure to read our full breakdown of the current tax brackets:

2025 Federal Income Tax Brackets

You should note that the One Big Beautiful Act amends the tax code to extend TCJA brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) beyond their scheduled expiration in 2025 and includes provisions to adjust the thresholds for inflation. This means that the existing brackets will continue in 2026, adjusted for inflation, rather than reverting to pre-TCJA rates. The exact dollar thresholds for each tax rate in 2026 are not specified in the act itself, as they will be calculated based on inflation indexing formulas defined in the Internal Revenue Code.

If you want to know how much your next tax refund or balance could be, SmartAsset’s tax return calculator can help you get an estimate.

Trump Tax Plan Changes: Standard Deduction

The 2017 Trump tax law (TCJA) nearly doubled the standard deduction for all filers. If you’re a single filer or if you’re married filing separately, your standard deduction for 2025 is $15,000. Joint filers have a deduction of $30,000 and heads of household get $22,500.

For reference, the standard deduction before the TCJA was $6,350 for individuals in tax year 2017, $12,700 for those married filing jointly and $9,350 for heads of household.

The One big Beautiful Act raises the standard deduction from 2025 to 2028, adding a fixed amount based on filing status—$1,000 for single and separate filers, $2,000 for joint filers and $1,500 for heads of household. These adjustments lower taxable income for a limited time before ending after 2028. Here’s a table comparing the 2025 standard deduction with the One Big Beautiful Act.

Standard Deduction: Current Tax Law (TCJA) vs. New Trump Tax Plan

Trump Tax Plan Changes: State and Local Tax Deductions (SALT)

The One Big Beautiful Act includes several major tax changes that build on and revise provisions from the 2017 Tax Cuts and Jobs Act (TCJA). One key area of focus is the state and local tax (SALT) deduction. Under TCJA, the SALT deduction was capped at $10,000 ($5,000 for married filing separately), limiting the benefit for residents in high-tax states.

Initially, the new House bill (passed on May 22) would have raised that cap to $40,000 for most filers and $20,000 for separate filers for tax year 2025. The deduction would have phased down for individuals with a modified adjusted gross income (MAGI) over $500,000 ($250,000 for separate filers), but not fall below the TCJA’s $10,000 floor.

The Senate scaled this back to the original $10,000 cap, but after further negotiation, the final version of the bill set the SALT deduction cap at $40,000 in 2025, rising slightly to $40,400 in 2026 and indexed to inflation through 2029. In 2030, the cap returns to $10,000. These changes reflect one of the most debated parts of the legislation and will temporarily expand SALT relief before reverting to current-law limits.

The table below compares the One Big Beautiful Act with the current law.

SALT Deduction Comparison Table

As you can see from the table, the One Big Beautiful Bill raises the SALT deduction cap to $40,000 for joint filers starting in 2025. However, it also includes a phase-down: the deduction is reduced by 30% of income over $500,000 ($250,000 for married filing separately) and cannot drop below $10,000 ($5,000 for individual filers). The One Big Beautiful Act cap increases slightly each year through 2029 and reverts to $10,000 in 2030.

If you itemize deductions, you might get a higher SALT benefit, but high earners will see reduced benefits once the phase-down applies. Unlike the initial House bill, which stopped at a flat cap, the Senate revised the bill to build in an income-based reduction that limits the impact for upper-income households.

The Senate bill also added a separate formula for pass-through entity taxes (PTETs), allowing filers to deduct up to the greater of $40,000 or 50% of PTETs paid, after subtracting other SALT payments. This offers targeted relief tied to business income and state tax rules.

Trump Tax Plan Changes: Mortgage Interest Deduction

Before the 2017 Trump tax law (TCJA), homeowners who itemized their deductions could deduct their mortgage interest payments on mortgages up to $1 million. But, after the TCJA was passed, that deduction was capped at $750,000 for mortgages taken out after December 15, 2017. If you’re married and filing separately, your limit is $375,000 in mortgage interest.

The One Big Beautiful Act makes the TCJA’s mortgage interest deduction limits permanent. It maintains the $750,000 cap and $375,000 limit for separate filers, thereby preventing the deduction thresholds from returning to pre-TCJA levels after 2025.

Trump Tax Plan Changes: Child Tax Credit

Under the 2017 Trump tax law (TCJA), the child tax credit (CTC) increased to $2,000 per child under 17. The credit was $1,000 before the TCJA became law. For tax year 2025, the first $1,700 of the credit is refundable. These changes were set to expire in 2025.

With the new Trump plan in 2025, the House initially increased the CTC up to $2,500 per qualifying child through 2028. And then beginning in 2029, the credit would have returned to $2,000, with annual inflation adjustments applied after that.

Comparatively, the Senate revised the bill to raise the credit to $2,200 in 2025 and then adjusted for inflation starting in 2026. The refundable part of the credit, now limited to $1,400, also increased based on inflation. The House approved the same increase in its final bill, which was signed into law by President Trump as the One Big Beautiful Act.

To claim the credit, the child, the filer and the spouse (if married) would all need valid Social Security numbers.

Trump Tax Plan Changes: Estate and Gift Tax Exemptions

The federal estate tax, which ranges from 18% to 40%, applies when people with large estate transfer property to heirs. The 2017 Trump tax law (TCJA) doubled the lifetime estate and gift tax exemption from $5.49 million for individuals in tax year 2017 to $11.18 million in tax year 2018. This higher limit, which allows wealthy families to transfer more money tax-free to their heirs, has increased each year since.

The estate and gift tax exemption for 2025 is $13.99 million, but it was set to revert back to a lower exemption at the end of this year. The One Big Beautiful Act raises the exemption to $15 million per person starting in 2026 and makes the increase permanent by updating inflation rules and removing the expiration language.

The table below compares the estate tax exemption based on pre-TCJA, TCJA and the One Big Beautiful Act:

Trump Tax Plan Changes: Lower Corporate Tax Rate

Before the 2017 Trump tax law (TCJA), the corporate tax rate was 35%. The TCJA reduced the rate to 21%. This flat rate applies to all corporate income (of at least $1). The intent was to give corporations a financial break that would be passed on to the employees, and subsequently the economy.

With the One Big Beautiful Act, the 21% corporate tax rate from the TCJA remains unchanged. However, the legislation introduces modifications to international tax provisions, including increased enforcement against foreign countries with discriminatory tax practices. It raises certain withholding tax rates on payments to entities from these countries and adjusts how multinational corporations are taxed on base erosion payments by increasing the base erosion and anti-abuse tax (BEAT) rate from 10% to 10.1% (the initial version of the bill called for an increase to 12.5%).

Trump Tax Plan Changes: Healthcare Mandate

Another impact of the 2017 Trump tax law (TCJA) was the elimination of the mandate for every adult to have health insurance. This was a key provision that was part of the American Care Act. The thought by many is that this could increase the premiums on insurance and drive taxes up for lower-income individuals down the road.

Under the One Big Beautiful Act, individuals who receive advance premium tax credits must file a tax return and reconcile those credits each year to remain eligible for future subsidies. Starting with plan years after January 1, 2026, if a person fails to file their tax return or reconcile advance payments from a prior year, they will not qualify for a premium subsidy in the following year. This limits eligibility to individuals who are current with their tax filing obligations.

Trump Tax Plan Changes: HSA Contributions

The first version of the House bill expanded provisions for health savings accounts (HSAs), though these were not included in the One Big Beautiful Act.

The House initially proposed that individuals earning under $75,000 (or $150,000 for joint filers) could contribute up to $8,600 for self-only coverage and $17,100 for family coverage in 2025, which is double the current limits. These higher contribution limits would have gradually phased out for incomes up to $100,000 (or $200,000 for joint filers), at an estimated cost of $8.4 billion over 10 years.

The first version of the House bill also proposed allowing HSA funds to be used for up to $500 annually toward fitness facility memberships, such as gym fees. This change would have expanded eligible medical expenses and was projected to cost about $10.5 billion over a decade.

Additional provisions from prior drafts included expanded eligibility to Medicare Part A enrollees and those with bronze or catastrophic marketplace plans, as well as the inclusion of gym memberships as qualified medical expenses—though these are not part of the One Big Beautiful Act.

Timeline: Key Trump Tax Plan Events

• Feb. 21, 2025: The Senate passes a budget resolution to begin reconciliation but does not authorize new tax cuts.
• Feb. 25, 2025: The House passes its own resolution allowing up to $4.5 trillion in tax cuts over 10 years, offset by $2 trillion in spending reductions.
• Apr. 2, 2025: The Senate releases a revised budget plan permitting $1.5 trillion in tax cuts and a debt ceiling increase of $5 trillion, adopting the House’s proposed tax assumptions.
• Apr. 10, 2025: The House approves the Senate’s amended budget, enabling up to $5.3 trillion in tax cuts and a $5 trillion debt limit increase.
• May 22, 2025: The House passes the revised “One Big Beautiful” tax bill, which includes a higher SALT cap, changes to inflation indexing and energy credits.
• June 3, 2025: President Trump says that he wants his new tax bill signed into law by July 4 and pressures the Senate to speed up its work.
• June 16, 2025: Senate Committee on Finance makes changes to the Trump tax bill. The initial text keeps many provisions from the House bill, including tips and overtime tax exemptions, but lowers the SALT cap.
• June 28, 2025: Senate Republicans win vote (51-49) in the chamber to start the debate on the new Trump tax and spending bill. Senator Rand Paul (R-KY) was the only Republican to oppose it.
• July 1, 2025: Senate passes the GOP tax and spending bill 51–50, with Vice President JD Vance casting the tie-breaking vote. Three Republicans opposed the bill with all the Democrats.
• July 3, 2025: The House passes the tax and spending bill, sending it to Trump’s desk. The plan extends tax cuts and boosts border and defense spending, adding almost $4 trillion to the debt over 10 years.
• July 4, 2025: President Trump signs the One Big Beautiful Bill into law, introducing new tax measures that modify and expand parts of the 2017 Tax Cuts and Jobs Act (TCJA).

Bottom Line

The U.S. tax code can shift significantly with new legislation. The TCJA introduced major changes to tax brackets and deductions, many of which were set to expire after 2025. The One Big Beautiful Act has now extended key provisions of the TCJA, including lower tax rates and higher deductions, while adding changes to SALT caps, estate taxes and tax breaks for seniors, as well as some workers and families.

Tips for Filing Your Taxes

• If you need help keeping up with all the tax changes, a financial advisor can work with you to prepare your finances. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• When the tax code changes, it’s a good idea to use a good tax filing service. We did our annual roundup of the best tax filing software so that you can get through this tax season as painlessly as possible.

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