The Big Bill (5/29/2025)
The Big…...Bill
There’s a lot going on in Washington. Just one of many things is what you may have recently heard referred to as “One Big Beautiful Bill”, a tax and spending bill that is basically seeking to extend changes that were originally enacted back in 2017 under TCJA (The Tax Cuts and Jobs Act.) Among other things, TCJA temporarily lowered taxes for individual filers, businesses and estates – and now some of those provisions may become permanent.
Last week the bill passed the House and went to the Senate for consideration - inevitably there will be changes before being signed into law, so keep in mind that much is still subject to change. Whether or not these proposals align with our political ideals, it’s helpful to know just how they may impact us financially. As objectively as I’m capable of, below you’ll find what will likely be the most relevant changes currently being proposed in the One Big Bill…
1. Permanent extension of certain tax provisions
Standard Deductions - increased standard deductions to be made permanent, and starting this year there could be an additional $1,000 deduction for single filers, $2000 for joint filers (temporary through 2028.)
Are you thinking “OMG Lauren, WTF are you talking about?” - When you file your taxes, the IRS allows you to “deduct” a flat amount from your income before your tax liability is calculated. A higher standard deduction means that most filers will opt for the standard deduction (over itemizing), and in this case, that amount will be $1k ($2k if you’re married and file jointly) higher for 4 years….$16,000 instead of $15,000 for individuals and $32,000 instead of $30,000. At the end of the day, it could be a few hundred bucks less that you owe in total federal taxes for the year.
2. SALT (State and Local Taxes) Deduction: Currently all taxpayers regardless of income level or filing status can deduct a maximum $10,000 of state and local taxes (think state income tax withheld from your paycheck, property taxes you pay on your home, etc.) The bill currently raises that cap to $40,000 for those who make less than $500,000.
WTF does this mean? If this passes, which IMO is unlikely without being changed, those of you who work and/or live in higher cost of living states like NY, CA, NJ, MD will be able to deduct much more of your state and local taxes at the end of the year. This particular provision is likely going to have the largest impact to readers of this newsletter and will likely mean larger refunds next spring. It’s a hot button topic though, so I’m not confident this will pass.
3. Child Tax Credit: the bill permanently extends the increased child tax credit, like the standard deduction above, with an additional temporary increase from $2,000 to $2,500 for tax years 2025-2028.
4. 529 Use Expansion: Increases possible use of 529 plan funds to cover K-12 education to include homeschooling and post-secondary credentialing expenses like certifications and professional licenses.
Translated: More specifics to come, but there could be additional uses for 529 account balances.
Modifications to Health Savings Accounts (HSAs)
Those enrolled in Medicare Part A can now contribute (currently not available)
Both spouses can make catch-up contributions to the same HSA
HSA funds can be used to pay for gym memberships
Enhanced Standard Deduction for Seniors: Additional $4k standard deduction for each individual over age 65 through 2028 for single filers with AGI up to $75,000 and joint filers with AGI up to $150k. This does not change how Social Security benefits are taxed, but is designed to temporarily provide some relief/reduced taxation for most seniors when it comes to their Social Security income.
No Tax on Tips & Overtime: So much in the details here - the tips need to be discretionary, non-discretionary tips will still be taxed. For overtime, only the amount in excess of the regular rate (or shift differential) is exempt from tax. So if you’re eligible for overtime pay, let’s say you make “time and a half” - $20/hour standard pay, $30/hour overtime pay, only the additional $10/hour for those overtime hours would be exempt, and only through 2028. Highly compensated employees are excluded from both of these provisions.
There are a lot of other things in this bill that I didn’t touch on, my goal was only to pluck the most relevant when it comes to the future of your finances, and I hope it was helpful.
Here is where my objectivity ends.
These changes may sound pretty great, and for most of you will likely mean you’ll have more money in your pocket at the end of the year, and maybe a larger tax refund next spring than what you got this year ... yay??? Well, unsurprisingly, there are a lot of pitfalls here. There are vastly complicated eligibility criteria for many of these provisions, which means a ton of tax code that will need to be written and interpreted for modest benefit to individuals yet substantial costs. The permanent extension of the lower individual tax rates alone is anticipated to cost $2.2 trillion over the next 10 years; increased standard deduction will add another $1.3 trillion. Oh, and there’s also a provision to increase the estate tax exemption to $30 million for married couples (when they die, $30 million can pass to their heirs with $0 paid in estate taxes) which will add another $212 billion to the cost of the bill. I’m sure you can see a trend here.
The bill will likely lower my tax liability each of the next 4 years - though something tells me not enough to offset the higher cost of living from tariffs …and you know what else it will do? Add trillions to the national debt, provide the wealthiest Americans with substantially bigger tax breaks, and kick millions of Americans off of medicaid.
Now I’m off my soapbox and off to bed.
