The passage of the One Big Beautiful Bill Act on July 3, 2025, which led to a close vote in the Senate (51-50, with Vice President JD Vance casting the vote that broke the tie), as well as in the House of Representatives (218-214), has completely altered the federal tax landscape in the United States.
This piece of legislation, which is currently awaiting the approval of President Donald Trump, would propose revisions that will directly effect the wallets of millions of taxpayers according to their income level. The bill, which was promoted as a fundamental promise of the Republican agenda, sets tax benefit brackets, temporary exemptions, and new rules that restructure the tax system. As a result, it generates considerable controversy on this Independence Day, which is July 4, 2025.
Key changes for each income bracket
Income up to $40,000-$50,000 (single):
- There is no change from 2017 to the fixed rate of 10%.
- The standard deduction was raised to $15,750 ($31,500 for joint filers), and there will be an additional rise of $750 until 2028, which will be adjusted to inflation.
- Adjusted for inflation, the child tax credit was raised to $2,500, and taxpayers were eligible for a return of up to $1,600.
- The estimated amount of money saved annually ranges from $150 to $630, based on the year’s income. On the other hand, 17 million children who hail from households with low incomes will not earn the entire credit since their families do not have enough money.
Income between $45,000 and $150,000:
- Since the law was passed in 2017, rates have remained between 12 and 22 percent.
- According to Section 224 of the law, the deduction for tips (up to $25,000) and overtime (up to $160,000) is decreased if the adjusted gross income exceeds $150,000 (or $300,000 on joint returns), with a reduction of $100 for every $1,000 that is added to the total.
- A deduction of up to $2,500 for the interest paid on a car loan is available for vehicles purchased after December 31, 2024, with the exception of luxury models.
- These actions are beneficial to employees working in the service industry, such as those who deliver packages and serve tables.
Income between $150,000 and $500,000:
- The rates range from 24 percent to 35 percent.
- Between now and 2029, the SALT deduction will be increased to $40,000, with annual increases of 1%.
- There is a restricted ability to obtain exemptions for tips or overtime due to a decrease in revenue.
Exceeding $500,000 in revenue:
- The highest possible rate is 37%.
- There are no exemptions for overtime or tips available.
- Keep the SALT deduction and estate exemptions at their current levels, which will be beneficial to people in high-tax jurisdictions like California and New York. In 2026, the estate exemption will be $15 million for singles and $30 million for couples.
Impact and distribution of tax benefits
The expiration of provisions such as exemptions for tips and overtime will result in the loss of tax benefits for more than seventy-five percent of households in the year 2030. In 2026, more than eighty-five percent of households will receive tax benefits. The fact that households with earnings greater than $217,000 will receive sixty percent of the tax benefits demonstrates that the distribution is not even. According to the Congressional Budget Office (CBO), the reform is beneficial to inhabitants of high-tax states; however, the cuts of one trillion dollars to Medicaid and SNAP might result in 12 million individuals not having health insurance by the year 2034. Consumers and the automotive sector will be negatively impacted as a result of the withdrawal of green subsidies, which will result in an increase in the cost of electric vehicles.
Incentives such as the tip deduction, overtime pay, and “Trump Accounts” ($1,000 for infants between 2025 and 2028) are included in the One Big Beautiful Bill Act, which establishes a tiered tax system that is mostly advantageous to the middle and higher classes. Despite this, disparities continue to exist, as families with low incomes are subject to social cuts. Over the course of the holiday weekend that falls on July 4th, the measure, which will result in an increase of $3.4 trillion in the deficit, will continue to attract political and economic debate.
