Beauty is in the Eye of the Beholder: What the OBBBA Means for Your Taxes and Planning
With the new exclusions for overtime and tips, you better believe I’ll be working longer hours and bringing my tip jar to all meetings.
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On July 4, 2025, the “One Big Beautiful Bill Act” (OBBBA) was signed into law. While the name might sound like a joke, the changes it introduces to the tax code are very real, and they’ll affect nearly every household in some way, especially retirees and those approaching retirement.
In typical Washington fashion, the bill is sprawling (870 pages!) and contains plenty of obscure language and fine print. But here’s the bottom line: OBBBA makes many of the 2017 tax cuts permanent, introduces a few new deductions and credits, and walks back or eliminates others. Below, I’ve outlined the key changes that may affect your family, along with some planning opportunities to keep in mind as we update your financial plan.
1. “Senior Bonus” – A New Deduction for Retirees
Starting in 2025, individuals age 65 or older may qualify for an additional $6,000 personal exemption. For married couples where both spouses are 65+, that’s a $12,000 deduction on top of the standard deduction and age-based additions.
But this “bonus” comes with income limits:
Single filers: Begins phasing out at $75,000 MAGI, gone by $150,000
Married filing jointly: Phases out from $150,000–$250,000 MAGI
Despite the headlines (and emails from the Socical Security Administration), the OBBBA does not make Social Security benefits tax-free. The same thresholds still apply:
Up to 85% of your benefits may be taxable depending on your income.
The “senior bonus” may reduce your overall taxable income, which could help reduce the amount of tax owed on Social Security, but it does not eliminate it.
👉 Planning Note: This deduction is available whether you itemize or not, but only from 2025 to 2028. If your income is near the phaseout range, we may limit Roth conversions or increase charitable giving strategies to preserve eligibility.
2. The Tax Cuts of 2017 Are Now (Mostly) Permanent
The lower tax brackets introduced by the Tax Cuts and Jobs Act (TCJA) — including the 12%, 22%, and 24% rates — were set to expire after 2025. The OBBBA locks those rates in for the foreseeable future.
Likewise, the larger standard deductions are now here to stay:
Single: $15,750
Married Filing Jointly: $31,500
(plus age-based additions: $2,000 per qualifying single filer, $1,600 per qualifying spouse on a joint return)
Both tax brackets and standard deductions will continue to be adjusted annually for inflation, so these amounts should rise gradually over time.
👉 Planning Note: These changes reduce the number of households who need to itemize, but they also shift how we think about timing charitable gifts and tracking deductible expenses. And remember: the tax code is written in pencil, not stone. A future Congress and administration can (and likely will) make changes.
3. SALT Deduction Temporarily Expanded (with a Catch)
The state and local tax (SALT) deduction — long capped at $10,000 — will rise to $40,000 per household for 2025–2029. But that expanded cap starts phasing out at $500,000 of income and disappears entirely by $600,000.
👉 Planning Note: If you live in a high-tax state or expect unusually high income in 2025, there may be a window of opportunity to maximize this benefit.
4. Charitable Giving Changes: Two New Rules
Starting in 2026:
Non-itemizers can deduct up to $1,000 (single) or $2,000 (joint) in charitable gifts.
Itemizers must now exceed 0.5% of AGI in charitable donations before any deduction counts.
👉 Planning Note: For clients giving regularly but not enough to itemize, the above-the-line deduction adds a small but meaningful incentive. For larger donors, consider timing gifts (or using donor-advised funds) to surpass the new AGI floor in high-income years.
5. Estate and Gift Tax Exemption Increased
The lifetime estate and gift tax exemption will increase to $15 million per person in 2026 (up from $13.99 million). That means married couples can now shield $30 million from estate tax — and the higher threshold will adjust with inflation going forward.
👉 Planning Note: This offers more breathing room for wealth transfer strategies — especially for families who were approaching the previous limits and debating whether to act before 2026.
6. What the OBBBA Means for ACA Health Insurance Credits
For those not yet Medicare-eligible or helping family members navigate the ACA (Affordable Care Act) marketplace, there are two key takeaways from the new law:
ACA Premium Tax Credit Enhancements Are Expiring
The temporary expansion of ACA premium tax credits under the Biden Administration — which removed the income “cliff” and boosted subsidy amounts — is still scheduled to expire at the end of 2025. The OBBBA did not extend this provision.
That means starting in 2026:
If your income exceeds 400% of the federal poverty level, you may no longer qualify for any ACA subsidy.
For those who remain eligible, the amount of credit will shrink.
👉 Planning Note: If you're retired but not yet on Medicare and using ACA coverage, we may want to manage your income sources (like Roth conversions or capital gains) to stay under key thresholds. This change could increase your out-of-pocket premiums in 2026 and beyond.
New HSA Eligibility for ACA Bronze and Catastrophic Plans
A positive change: Starting in 2026, all ACA bronze and catastrophic plans will be HSA-eligible. Previously, many of these plans didn’t meet the technical definition of a “high-deductible health plan” (HDHP) required to open or contribute to a Health Savings Account.
👉 Planning Note: If you're self-employed, semi-retired, or buying ACA coverage, this opens the door to HSA contributions — one of the few “triple tax-advantaged” strategies still available. For households in the right income bracket, this could be a valuable savings and tax planning tool.
7. Major Medicaid Changes to Be Aware Of
While the OBBBA is best known for its tax changes, it also includes significant shifts to Medicaid that could affect millions of low-income families and older adults who rely on the program.
Starting in 2026:
Work requirements will apply to many adults ages 19–64 unless they’re disabled or caring for dependents.
Eligibility will be rechecked every 6 months (instead of annually), which could lead to more people losing coverage for administrative reasons.
Copays and premiums may increase for some enrollees, especially those with incomes just above the poverty line.
States will also face tighter rules around how they fund their share of Medicaid costs — which may lead to cuts in optional benefits like home-based long-term care.
👉 Planning Note: If you or a loved one is navigating Medicaid eligibility — especially for long-term care — these new rules will complicate planning. We’ll keep a close eye on how Virginia implements these changes over time.
7. Miscellaneous Deductions and Credits: The Fine Print
A few other changes worth noting:
Alternative Minimum Tax (AMT): Higher exemption amounts stay, but phaseouts revert to pre-2018 levels — a partial win.
Mortgage interest deduction cap remains at $750,000.
Electric vehicle and home energy credits will end after 2025.
Tip and overtime income exclusions (up to $25,000) are available for 2025–2028 — but come with detailed qualifications and phaseouts.
And yes, the OBBBA introduces something called a “Trump Account” — a kind of tax-deferred account for kids under 18 — but we’ll need more guidance before recommending it. For now, it’s more political novelty than practical tool.
Final Thoughts
Tax legislation often generates more confusion than clarity — and OBBBA is no exception. While many of the bill’s provisions are favorable for middle and higher-income families (lower rates, higher deductions), they also come with expiration dates, income thresholds, and moving parts that require thoughtful planning.
In your upcoming review meetings this fall, we’ll incorporate these changes into your plan, especially for:
Retirement income strategies
Roth conversion analysis
Charitable giving optimization
Estate and gift planning
In the meantime, feel free to reach out if you’re curious how any of these changes might affect you or your family.
