The Big Beautiful Bill Moves Forward: A First Look At 10 Key Tax Cuts

Forbes

a day ago

WASHINGTON, DC - MAY 22: U.S. Speaker of the House Mike Johnson (R-LA) speaks to the media after the ... More House narrowly passed a bill forwarding President Donald Trump's agenda at the U.S. Capitol on May 22, 2025 in Washington, DC. The tax and spending legislation, in what has been called the "One, Big, Beautiful Bill" Act, redirects money to the military and border security and includes cuts to Medicaid, education and other domestic programs. Johnson was flanked by House Committee Chairmen who helped craft the legislation. (Photo by)
During his presidential campaign, Donald Trump vowed to make major changes to U.S. economic policy. That effort began with significant shifts in tariff strategy, but tax reform remained the cornerstone of his agenda. This week, the House of Representatives approved the initial version of new tax and spending legislation, dubbed the "Big Beautiful Bill." The proposal includes tax changes that reflect many of Trump's original campaign promises. Although the bill is still in its early stages and subject to change, the current version outlines substantial tax cuts that aim to benefit Americans across all income levels. Below is a summary of the top 10 tax cuts and breaks featured in the bill.
The new legislation makes the lower income tax rates created during the first Trump Administration in the 2017 Tax Cuts and Jobs Act (TCJA) permanent. These tax rates are currently due to expire at the end of 2025, and the current bill extends these rates indefinitely.
The current bill extends the increased standard deduction at the rate provided in the TCJA. Here's a breakdown of the increases in the standard deduction created by TCJA, which will remain with the passing of the current bill.
Further, the bill will increase the standard deduction for all filing types by an additional $1,000 to $1,500 until 2029 in an effort to combat inflation.
Beginning with the 2026 tax year, the new bill provides for the qualified business income deduction to be permanently increased from 20% to 23%. This provision is currently set to expire at the end of 2025 and would result in a significant tax increase for small business owners when combined with the elevated tax brackets that will be created by the expiration of the TCJA. This provision would save a business owner earning $1 million over $111 thousand in taxes, as illustrated in the table below.
The Proposed enhancement of the Qualified Business Income (QBI) deduction saves business owners a ... More significant amount in taxes.
Prior to the TCJA, the child tax credit was up to $1,000 per child under the age of 17 as of the end of the tax year. Trump's TJCA increased the credit to $2,500; however, this increase was set to expire at the end of the year. The new bill extends this increase to the child tax credit until 2029, and keeps it at a minimum of $2,000 indefinitely. Further, the value of the credit is indexed to inflation to ensure it continues to provide a meaningful benefit to parents.
The bill provides for an extension of the increased alternative minimum tax (AMT) exemption. AMT is applied in addition to regular income tax for taxpayers who are subject to it. When it was established in 1969, it aimed to ensure that high-income taxpayers paid a minimum amount of tax, even after using various deductions and tax preferences. However, the calculation was not indexed to inflation; therefore, after 5 decades, the calculation began affecting middle-income earners. The TCJA increased the exemption amount for AMT to protect middle-income taxpayers, and this extension maintains that protection.
In addition to the standard deduction increases, the new legislation provides for an additional $4,000 deduction for eligible senior taxpayers aged 65 years or older. This deduction can be applied if the senior taxpayer takes the standard deduction or elects to itemize deductions. The full deduction would be available for single filers with a modified adjusted gross income (MAGI) of $75,000 or less, and for married couples filing jointly with a MAGI of $150,000 or less.
The U.S. Bureau of Labor Statistics estimates that the total amount of overtime and premium pay in the United States was approximately $5.7 trillion in 2024. This additional income may cause a taxpayer's income to exceed higher tax brackets, resulting in a higher tax rate for hourly workers. In contrast, the exemption for taxes on overtime pay is projected to increase take-home pay and contribute to economic growth.
The No Tax on Tips Act was initially introduced in January 2025 by Texas Senator Ted Cruz. That bill was proposed and passed the U.S. Senate on May 20, 2025. The bill was passed unanimously and would create a tax deduction on tips up to $25,000. The components of this original bill were incorporated into the larger spending and tax reform bill that was passed by the House of Representatives days later. However, the latest bill included no cap on the deduction amount, allowing all tip income to be excluded. The bill explicitly states that Income from tips claimed must be from an occupation "which traditionally and customarily" has received tips.
This change would allow taxpayers to deduct a larger portion of their state and local tax payments on their federal returns. The existing tax law limits deductions for state income taxes, property taxes, and sales taxes to $10,000. The proposed bill raises that cap by 400%, with benefits phasing out for households that make more than $500,000.
This is arguably one of the most unexpected features of the new legislation. If passed in its current state, children born in the United States between January 1, 2025, and January 1, 2029, will be eligible to receive $1,000 via a federal government contribution in the child's "Trump Accounts.' The money will be invested in financial markets on their behalf, and they will be able to access it when they reach adulthood. The funds can be used for specific purposes, such as education expenses, purchasing a first home, or capital to start a business. These accounts will be established and funded by the US Treasury. Parents and third parties will also be allowed to contribute up to $5,000 per year. Earnings grow tax-deferred, and qualified withdrawals are taxed at the more favorable long-term capital gains rate. Children can withdraw up to 50% of the account balance at 18 years old. Between the ages of 25 and 30, they can access their full balance for approved uses. After the age of 30, the funds are available without restriction.
The Big Beautiful Bill has passed the House, but lawmakers have signaled that it will undergo changes as it moves through the Senate. Most expect the Senate to revise the bill, after which the updated version will return to the House for a second vote. Legislators have expressed their intention to finalize and pass the legislation by July 4th.