The “One Big Beautiful Bill Act” (OBBB Act): Key Tax and Financial Changes for Federal Employees
On July 4th, President Trump signed the “One Big Beautiful Bill Act” (OBBB Act) into law, following intense negotiations in Congress. The bill passed narrowly, with the Vice President casting the tie-breaking vote in the Senate. A complex mixture of tax cuts, policy reforms, and spending shifts, this new legislation will have significant financial implications for individual taxpayers, especially federal employees.
In this fact sheet, we break down the key changes introduced by the OBBB Act, how they impact federal employees, and offer actionable steps to take in response.
FACT SHEET
1. Key Tax Changes for Individuals and Families
The OBBB Act builds upon the 2017 Tax Cuts and Jobs Act (TCJA), making several provisions permanent. These changes will affect your tax brackets, deductions, and credits for years to come.
Provisions from the 2017 Tax Cuts and Jobs Act (TCJA) (Permanent)
Income Tax Brackets:
The current seven federal income tax brackets are preserved, preventing projected increases of 1–4% across most income levels in 2026.
According to Strategas Research, making these provisions permanent helped middle-class families avoid a projected $400 billion tax increase.
Standard Deduction Increases (Permanent)
Individual: $15,750
Head of Household: $23,625
Married Filing Jointly: $31,500
Additional $60,000 deduction for seniors 65+
A $6,000 additional deduction is available for seniors 65+ (phases out at $75,000/$150,000 income
This is commonly thought of as a change to Social Security taxation, with the intention for most Social Security recipients to receive tax-free Social Security.
With the phase out at various thresholds, this could change the portfolio distribution and tax strategies such as Roth conversions for most.
Child Tax Credit (CTC) Increased
Increased to $2,200 per child, with $1,700 refundable.
This provides greater financial relief to eligible families.
New Tax Relief for Workers (Temporarily from 2025–2028)
Tipped Income: Up to $25,000 (income cap: $150,000/$300,000).
Overtime Wages: Up to $12,500 (single) or $25,000 (joint).
Auto Loan Interest: Up to $10,000 for new U.S.-made vehicles (income cap: $100,000/$200,000).
State and Local Tax (SALT) Deduction Expanded
Cap rises from $10,000 to $40,000 starting in 2025, phasing out for incomes over $500,000.
The benefit ends in 2030, when the cap returns to $10,000.
Estate & Gift Tax Exemption Increased (Permanent)
$15 million per individual / $30 million per couple (Permanent).
Itemized Deduction Caps (Added)
Starting in 2026, deduction benefits are capped:
35% for taxpayers in the 37% bracket
32% cap for the expanded SALT deduction
Qualified Business Income Deduction (Maintained)
20% deduction for pass-through income made permanent, benefiting side-business owners or contractors.
Business Tax Incentives (Permanent)
100% expensing for domestic R&D and manufacturing facilities.
Immediate deductions for experimental expenditures.
Clean Energy and EV Tax Changes
Accelerates the phase-out of energy tax credits from the Inflation Reduction Act of 2022.
While some credits are left intact, OBBB eliminates the $7,500 credit for new EVs and $4,000 for used EVs for vehicles purchased after September 20, 2025.
2. Strategic Savings Opportunities Under the OBBB Act
Several provisions in the OBBB Act open new opportunities for savings, particularly for children and healthcare.
Trump Accounts (2025–2028 Birth Years)
$1,000 seed from the federal government at birth.
Up to $5,000 annual after-tax contributions allowed.
Tax-deferred growth, with half of the funds available at age 18 for education, housing, or starting a business (growth taxed at capital gains rates).
Expanded Use of 529 and HSA Funds
529 plans now offer broader educational use.
Increased HSA contribution opportunities for participants in high-deductible health plans (HDHPs).
3. Broader Policy Changes and Their Impact on Federal Employees
The OBBB Act brings about significant changes to federal programs that may affect both your budget and planning.
Medicaid & SNAP Cuts
Medicaid faces nearly $1 trillion in cuts, along with new work requirements for adults under 65.
SNAP: Tighter work rules (up to age 65) and cost-sharing requirements for some states.
Student Loan Limitations
Borrowing caps: $100,000 for graduate students; $50,000/year for law and medical students.
Grad PLUS loans eliminated; Parent PLUS capped at $20,000/year.
New Repayment Assistance Plan (RAP) offers income-based repayment or a fixed plan.
This change increases the need for alternative funding strategies and planning further in advance.
Increased Federal Spending
$150 billion+ for military funding.
$150 billion for immigration enforcement, including:
$45B for the border wall and Customs and Border Protection
$13B in grants for local/state enforcement.
Impact on Deficit
CBO Estimate: Adds $3.4 trillion to the deficit over 10 years using traditional methods.
4. Key Actions Federal Employees Should Take Now
The OBBB Act’s complexity means it’s crucial to plan ahead. Here are the key steps you should take:
1. Reassess Tax Withholdings
Reflect the updated Child Tax Credit, SALT, and other deductions.
2. Consult a Tax Professional
The law’s complexity demands tailored guidance to ensure you're optimizing deductions.
3. Maximize Deductions
HSAs, 529s, and understand caps on overtime/tip deductions.
4. Plan for Medicaid/SNAP Changes
If household members rely on Medicaid or SNAP, prepare for changes to coverage and eligibility.
5. Rethink Education Funding
With tighter student loan rules, early savings or exploring non-degree career paths is key.
6. Evaluate Trump Accounts
Especially if expecting a child between 2025–2028.
5. Final Thoughts: Navigating the OBBB Act’s Impact on Your Financial Future
The OBBB Act represents a substantial overhaul of the tax and financial landscape. While the law introduces tax relief, it also presents challenges. These changes have implications on retirement planning, cash flow in retirement, tax planning strategies, and Social Security maximization. Proactive financial planning is essential for making the most of new opportunities while preparing for potential risks.
Additionally, our concerns are heightened with the anticipated increase to national debt and concerns over the future tax landscape.
Important Disclaimer
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
