NEWS: Congress passed the “Big Beautiful Bill” at the end of last month, and President Trump signed it into law on July 4. The new law changes a variety of tax and spending policies.
WHAT IT MEANS TO YOU: New tax and spending policies will have an effect on your finances – either good or bad – depending on your income.
The biggest aim of the “Big Beautiful Bill,” which went from being a bill to being a law earlier this month, was to extend the 2017 Tax Cuts and Jobs Act, which was set to expire at the end of 2025. If you wondered why so many really wealthy people backed Trump in the 2024 election, this is the reason.
The TCJA reduced federal taxes for corporations from 35% to a flat 21%; increased the amount of business income owners can deduct from personal income; and doubled the inheritance exemption, from $5.5 million to $11.18 million (something that only benefits someone who’s really, really rich).
Yes, it also had provisions for the rest of us, including doubling the standardized deduction (though removing many things that could be itemized). But there’s a reason people with a lot of money and corporations wanted those changes to not only be made permanent, but expanded.
Fast-forward to the OBBBA (One Big Beautiful Bill Act). There’s a lot to it, way more than the 2017 tax changes – hundreds of policy changes and additions. It’s hard to keep track of, and you likely won’t see the effects right away and then when you do, maybe even not realize they’re a result of OBBBA.
It’s interesting to note that many of the provisions that benefit, or are perceived at first glance to benefit, lower wage earners expire after a couple of years, or don’t really benefit that many people. On the other hand, many of those that benefit high earners and corporations are permanent.
Also permanent are many of the provisions that negatively affect low-wage earners or people who are disabled, elderly, or otherwise rely on federal benefits.
A reality of the OBBBA is that it seeks to cut government costs, but doesn’t look for additional revenue in the most logical place. Instead of making taxes equitable, so the people with the most money help pay the cost of running America, it looks to cut costs by removing benefits and programs for people who need them most, or people with a moderate income. It doesn’t take a financial analyst or numbers genius to see that.
If you’re reading this, you’re likely one of the people who’s helping to foot the bill. So, today we’re taking a look at some of the most significant elements of the new law, including those that will effect households with moderate or lower incomes.
In today’s column we’ll looking at tax changes for non-wealthy people, the Affordable Care Act and the Supplemental Nutrition Assistance Program [SNAP]. In the next few weeks, we’ll tackle Medicare and Medicaid, student loans, what businesses are getting out of it, winners and losers, and more.
No Taxes on Overtime – kind of
No taxes on overtime doesn’t mean your overtime won’t get taxed. Sorry! Your entire paycheck, including overtime, will still be taxed as usual. If you get overtime that’s in accordance with the Federal Labor Standards Act – time and a half for hours worked after a 40-hour work week – you can deduct what you earned in overtime, up to $12,500, as qualified overtime compensation. If you earn more than that in overtime, you’re taxed on what’s left after the maximum.
If you work a job that’s overtime-exempt under FLSA rules, or have some kind of overtime deal with your employer that doesn’t conform to the federal rules, you’re out of luck. It doesn’t apply to jobs that aren’t year-round, like seasonal jobs. For instance, you may work 10 hours of overtime a week at the ice cream stand from Memorial Day to Labor Day, and be paid time and a half for it, but you’ll still have to pay taxes on it.
Other federal deductions, like Social Security and Medicare, will still be taken out of all overtime. And if you work in state that has state income tax, you’ll still pay state tax on overtime.
This begins with this tax year and expires at the end of 2028.
No Taxes on Tips – kind of
This is similar to “no taxes on overtime.” When you file your taxes, you still list your tips as part of your gross income, but can take a deduction of up to $25,000 for tips. You must report your tips to your employer and have the required documentation for them. If your gross annual income is more than $150,000, the amount you can deduct phases down.
It also only applies to “traditionally tipped professions,” which have yet to be defined by the IRS, but will be before tax time comes around, but generally include waitresses, bartenders, hairdressers and nail salon workers, delivery drivers, etc. If you work back of house and are part of a tip-sharing arrangement with the front of house staff, you likely won’t qualify.
This begins with this tax year and expires at the end of 2028.
No Taxes on Social Security – not
As with the other “no taxes” generalizations, this simply isn’t true. Social Security will continue to be taxed the way it is now.
Before we get into the reality of “no taxes on Social Security,” let’s review how taxes work for Social Security beneficiaries. If someone has earned income as well as Social Security benefits. If your earned income combined with Social Security benefit is less than $25,000, you don’t pay taxes on the Social Security. If the combination is between $25,000 and $34,000, then 50% of the Social Security benefit is taxed. If combined income is more than $34,000, then 85% of the Social Security benefit is taxed.
The change in the new law doesn’t change any of that.
What the new law provides is a $6,000 tax deduction for people over 65, starting this tax year and ending after the 2028 tax year. The deduction applies whether they collect Social Security benefits or not.
The deduction reduces the amount of taxable income, meaning that those who get it will pay less income tax. It doesn’t do much to offset income tax on Social Security unless you’re a high wage earner. If your income is less than $25,000, you’re not paying taxes on Social Security anyway, so it’s a moot point.
It’s also moot If you’re under 65, but collect Social Security. In that case, nothing changes. You pay the same taxes and don’t get the deduction.
If your modified adjusted gross income is more than $75,000, the deduction decreases.
Child Tax Credit increase
The Child Tax Credit was slated to go back to $1,000 after a temporary increase during the pandemic era, but has been made permanent and increased to $2,200 from $2,000. A tax credit reduces the amount of taxes you owe, unlike a tax deduction, which reduces your taxable income.
It is used for children 16 and under, and will be adjusted annually for inflation. It’s phased out for people who earn more than $200,000 ($400,000 if married and filing jointly).
Adoption Tax Credit Refund – this year only!
People who adopt a child can claim a tax credit (up to $16,810 in 2024) for qualified expenses. A tax credit reduces the amount of taxes you have to pay, unlike a deduction, which reduces your taxable income. So that means if the family paying taxes owed less than what they paid in qualified adoption expenses, they couldn’t claim their full amount. For the 2025 tax year only – which means the adoption and any expenses had to take place this year, families could get up to $5,000 refunded as part of the tax credit if they owed less in taxes than what they could claim as a credit.
Charitable deductions are back – kind of
The 2017 tax law eliminated the deduction for charitable donations. A $300 allowance was brought back in 2020, because of COVID, but that was only for one year. The philosophy was that with the larger standardized deduction the law had, fewer people would be itemizing. The result was that a lot less people gave to charity. It only applied to qualified 501(c)3 charities and it’s only for monetary donations, not property or services.
Under the new law, beginning in the 2026 tax year, you can deduct up to $1,000 ($2,000 for joint filers) if you take the standardized deduction. If you itemize deductions, donations deducted must be more than 0.5% of your adjusted gross income.
State and Local Tax [SALT] Deduction
The maximum SALT deduction is temporarily increased from $10,000 to $40,000 for people with an adjusted gross income of $500,000 or less. That means you can deduct up to $40,000 in state and local taxes from your federal tax bill. This will benefit the 16.3% of New Hampshire residents who pay more than $10,000 in property taxes. In states with sales and income taxes, as well as property taxes, more people will benefit because of the additional taxes. But in every state, the beneficiaries are people who are wealthy enough to have high state and local tax bills. It reverts back to $10,000 in 2030.
EV rebates, tax credits speed away
Beginning Oct. 1, the rebate for people who qualify by income and buy a qualified used electric vehicle is eliminated. The rebate was for $4,000 or 30% of sticker price, and had an income limit of $75,000 for individuals, $150,000 for joint filers and $112,500 for a head of household.
Also eliminated on Oct. 1 is the tax credit of up to $7,500 for people who buy a qualified new electric vehicle. Income limit was $150,000 for individuals, $300,000 for joint filers and $225,000 for head of household.
For both, there were restrictions on what cars qualified, including where they were made.
The $1,000 tax credit for installing EV charging equipment at a home or business ends Jun3 30 next year.
Auto loan interest tax deduction
Anyone who takes out a loan for a vehicle that had final assembly in the U.S. can deduct the interest for tax years 2025-2028. The vehicle must be a new, personal-use vehicle. The maximum amount that can be deducted for those with an income below $100,000 is $10,000. The maximum decreases for higher incomes.
Weatherization, clean energy tax credits gone
The bill eliminates the tax credit of up to $3,200 for weatherization and clean energy home upgrades, including insulation, new windows, heating and air condition, etc. Get it done by Dec. 31, because you can’t claim it after this tax year.
It also ends the 30% tax credit for adding green energy upgrades, like solar, clean heating systems, and more on Dec. 31.
SNAP will cost state more, give hungry people less
It’s interesting that the most damaging provisions of the changes to the Supplemental Nutrition Assistance Program [SNAP] don’t take place until after the 2026 mid-term elections. There’s a reason for that – the changes mean a huge financial hit to state budgets as well as to residents.
If you receive SNAP benefits, you know that you already have to jump through hoops to get that monthly money that will help put food on the table. The new law is going to make it even more complicated, which will likely push people out of the program, not because they don’t qualify, but because it’s just too difficult to get it all done. It also puts more of a burden on the state government. If you live in a state where the government is already disinclined to support people who don’t have a lot of money, then it’s going to be even worse.
Expanded work requirements. The law expands work requirements to recipients between 19 and 64, including many who were previously exempt, including those experiencing homeless, some veterans, foster youth who have recently aged out of the system and people between age 55 and 64. The requirements are for 80 hours of paid work or volunteer work a month, or participate in a training program. Previously exempt groups can ask for an exemption, but must file increased paperwork and must meet the requirements until the exemption is approved.
While the previous SNAP rule was that those who didn’t meet the work requirement only got three months’ worth of benefits, the new law calls for eliminating their benefit.
A proposal to waive the three-month limit for areas with high unemployment was changed to require unemployment be above 10% for it to go into effect.
While that may sound logical at first blush, the truth is that most of the people who get SNAP benefits who can work are working. In fact, turn it around – about 10% of the employed population in America receives SNAP benefits, according to the Center of Budget and Policy Priorities. Most of them are in low-wage jobs or work multiple part-time jobs.
Studies over the years continue to show that stricter work requirements do cause people to lose SNAP benefits, but not because they’re not working. It’s because they either have trouble meeting documentation deadlines and jumping other administrative hurdles, or have challenges that make it hard to work, like lack child care, transportation or housing.
Thrifty Food Plan increases stifled. The new law limits increases to the Thrifty Food Plan, which determines the lowest-cost needs for SNAP families. It used to be determined by formula that included a review of food costs, consumption, dietary recommendations and other factors. Under the new law, it can only be increased for inflation, which means lower benefits over time for recipients.
Utility calculation changes. Households that are in the Low Income Home Energy Assistance Program (LIHEAP) previously automatically qualified for the Standard Usage Allowance, which deducted a certain amount for energy costs from “excess income.” Now that only applies if the household has a member who is 65 or older, or disabled. Households will have to provide documentation of home energy use, and it’s estimated it’ll lower the average food benefit for people who also get LIHEAP by $100 a month.
A 2024 provision to SNAP that allowed the cost of internet to be included in utility expenses was done away with by the new law. It was estimated it would’ve increased the monthly average benefit by $10.
SNAP-Ed nutrition program eliminated. The SNAP-Ed program, which worked with schools and communities to promote exercise, healthy eating, and nutrition education is eliminated as of Oct. 1. Reports are this has already triggered some layoffs at schools.
Many immigrants excluded. Many groups of immigrants legally living in the U.S. who were traditionally eligible for SNAP benefits no longer will be. States must determine who they are and terminate their benefits. These include:
- Those legally living in the U.S. under DACA
- Refugees and asylum-seekers with humanitarian status
- Survivors of trafficking and domestic violence who have pending or approved T visas or have petitioned for legal status under the Violence Against Women Act.
- Those with valid Temporary Protected Status visas
States will pay more. Beginning Oct. 1, 2026, states will have to pay 75% of administrative costs for SNAP, up from 50%.
Added to that, states will also have to pay an extra percentage of costs tied to their error rates.
For instance, New Hampshire in 2024 had an error rate of 7.57%, with 4.52% overpayment errors and 3.05% underpayment errors, according to the USDA. A 6-8% error rate means an additional 5% of administrative costs for the state. Below 6% costs nothing; 8-10% adds 10% to the state’s costs and more than 10% adds 15%.
The current federal government says that the error rate penalty is to cut down on fraud, but the USDA has repeatedly found over the years that the errors are just that – errors. Some are made by administrators, some by recipients, both trying to navigate all the rules. Analysts say that the additional rules and requirements will likely drive up error rates.
Affordable Care Act: Less affordable, less care
If you have employer-provided health care coverage or have the money to pay for your own private insurance, most of the changes to the Affordable Care Act – is anyone really still calling it Obamacare? – may seem trivial. If ACA is where you get your health insurance, though, everything just got a lot harder. While the official philosophy is that the changes are to combat “fraud,” the reality is that more levels of bureaucracy, red tape and rules mean fewer people will be able to jump through the hoops and access health insurance.
Estimates are that by 2034, as many as 17 million Americans will have lost health insurance because of changes to ACA and Medicaid (which funds expanded ACA in many states).
Expanded premium tax credit may be gone. The biggest hit is for those whose ACA is paid for in part by an expanded premium tax credit, which allows people whose income is above the previous threshold to get the tax credit that reduces the cost of the premium. The cap used to be people with a modified adjusted gross income of more than 400% of the federal poverty guideline, which this year would be $62,600 for an individual (its $15,650 for one person). That cap was extended to allow those making that much, and more, to get the tax credit, with the cost of their premiums capped at 8.5% of modified adjusted gross income.
The expanded premium tax credit was introduced under the American Rescue Plan and renewed until the end of this year, but the new law doesn’t call for it to renew, which means that as many as $4 million people may find their premiums too expensive to pay.
[subhed] Premium tax credit “recapture.” Many people who get ACA are self-employed and have unpredictable incomes. Beginning Dec. 31, those who got a bigger premium tax credit than what they ultimately qualify for must pay it back in full.
Enrollment just got a lot harder. For everyone who gets a premium tax credit, expanded or not, – which is 92% of recipients – enrollment just got a lot harder. [The tax credit is what discounts your premium and is based on income.]
Under the new law, beginning in 2028, so the enrollment period that begins Nov. 1, 2027, you can’t simply re-enroll by allowing your plan to roll over. The program used recipients’ tax information from that year to determine the premium, and adjusted the premium the following year to reconcile differences. Beginning with 2027 enrollment, all recipients who get the premium tax credit must fill out an application and re-enroll ever year.
Beginning next year, the open enrollment period will be Nov. 1-Dec. 31, rather than ending Jan. 15, as it has since it began in 2010.
Recipients who automatically re-enrolled and their tax credit was based on estimated income (a common factor for self-employed people) will have to reconcile differences in their premium and actual income before they can receive further coverage, and may lose coverage completely if it’s not reconciled.
Buh-bah to special enrollment for lowest-income recipients. Beginning Aug. 25 – less than a month away – the year-round special enrollment period (SEP) for people who have very low incomes (150% of the federal poverty guideline or less) is eliminated. Anyone below that income threshold will have to wait until the Nov. 1-Dec. 31 window.
The reason year-round enrollment existed was to make sure that people without much money would still have access to health care, since they likely wouldn’t be able to pay for it out of pocket until the enrollment window rolled around. In 2025, 150% of the federal poverty guideline is $22,590 for an individual, $30,660 for a two-person household, $38,730 for three, and $46,800 for four.
The SEP for “qualifying life events,” like a change in employment, loss of health care, or having a baby, will still exist, but recipients won’t be able to get benefits as soon as they were able to before. More verification will be required for approval, and analysts say it can delay health coverage for up to 90 days or more.
Some legally residing immigrants lose eligibility. Many groups of legally residing immigrants who were eligible for ACA are no longer eligible under the new law, including:
- Those legally living in the U.S. under DACA
- Refugees and asylum-seekers with humanitarian status
- Survivors of trafficking and domestic violence who have pending or approved T visas or have petitioned for legal status under the Violence Against Women Act.
- Those with valid Temporary Protected Status visas
- Lawfully residing immigrants who earn less than 100% of the federal poverty level and are not covered by Medicaid.