Impact of OBBBA to Taxpayers
Since the passing of the Tax Cuts and Jobs Act of 2017 (TCJA), the clock has been ticking on what tax circumstances would look like for 2026. The long awaited One Big Beautiful Bill Act (or OBBBA) passed into law on July 4th. While the bill received extensive media attention, most taxpayers won’t see large changes in their end of year tax bill. Read on below to learn what may impact you.
Under the OBBBA, the tax brackets created under the TCJA became permanent along with an adjustment for inflation. For example, if last year you and your spouse found yourself in the 22% tax bracket, the income range changed from $49,225-$104,938 to $50,142-$104,938. Brackets above 22% didn’t receive an adjustment for inflation but are still more favorable than rates prior to the passing of TCJA. Additionally, capital gains rates followed suit by becoming permanent with a slight increase for inflation. Standard deduction amounts were also made permanent, again with slight increases due to inflation.
One of the most notable parts of the bill, at least from an estate planning perspective, is the increase of the estate tax exemption to $15M per person. Without the extension under OBBBA, exemption amounts would have been less than half of this amount as set prior to 2018.
A piece of the bill that had been highly publicized was ‘no tax on tips’ with hopes that tip income would be exempt from taxes. Under OBBBA, up to $25,000 of tip income per year may be subject to a below the line deduction. This comes with several stipulations including income phaseouts and a job that would have received voluntary tips prior to 2025. Unlike other changes under the OBBBA mentioned in the article already, this is only temporarily in effect from 2025-2028.
Another set of changes came in education and retirement funding for youth. The OBBBA increased the amount of allowable K-12 expenses from $10,000 to $20,000 from 529 accounts. Additionally, it allowed for post-secondary education expenses (i.e. credential exams, fees, and continuing education) to be taken from 529 plans. Having a baby this year? The OBBBA also enacted ‘Trump accounts’ (similar to an IRA, without requiring earned income) as a new form of retirement savings for children born in 2025 and beyond. Annual contribution limits will be $5,000 and initially $1,000 will be available to fund these accounts for each child born in 2025-2027 as part of the pilot program.
The OBBBA hold changes far extend what’s highlighted above. While some changes may keep your taxes business as usual, others may require more robust planning to meet your tax needs. Working with a qualified CPA is always recommended in order to fit your customized tax needs.
Sara Potts is a CFP® professional and Lead Advisor with Keller Wealth Advisors.
Published in the Victoria Advocate.
