Landmark 2025 tax and spending act: Key takeaways for your financial plan

The 2025 One Big Beautiful Bill Act brings tax changes that go far beyond adjustments to marginal rates. Whether you’re working, managing a business, saving for retirement or education, or supporting family members, many of the updates could directly affect your income, deductions, and long‑term planning strategies.

Some provisions create new opportunities—like enhanced deductions, expanded savings tools, and continued tax breaks—while others reduce existing benefits or introduce new income thresholds.

Understanding which changes apply to your situation can help you make informed decisions about your tax planning and take advantage of new options. This article breaks down what’s staying, what’s new, and where timely action could make a meaningful difference.

Key highlights at a glance

These are the major updates likely to impact your finances starting in 2025.

What’s staying or made permanent:

Several popular provisions from prior tax laws have been locked in, reducing uncertainty and allowing for more long‑term planning. While tax laws are always subject to change (and therefore may not be truly “permanent”), these items are no longer set to expire. Here are the key elements that will continue under the new law:

• Lower individual tax rates and tax brackets remain.
• The standard deduction stays higher (and gets a small bump).
• The child tax credit has been made permanent and has increased (now $2,200 per child, indexed for inflation).
• The 20% qualified business income (QBI) deduction for pass‑through businesses continues.
• Estate tax exemption increases to $15M (indexed for inflation) starting in 2026.

New or expanded deductions:

The law introduces several new deductions and temporarily enhances others—most of which phase out at higher income levels. Here are the highlights (see the Summary of tax deduction changes table for income ranges and calculation details):

• New $6,000 deduction for seniors (65+) for 2025–2028; phases out starting at $75,000 modified adjusted gross income (MAGI) ($150,000 for married filing jointly).
• State and local tax (SALT) deduction cap raised from $10,000 to $40,000 available 2025–2029 (with an annual 1% increase from 2026–2029); phases out starting at $500,000 MAGI ($250,000 for married filing separately), but the deduction will not drop below $10,000.

Non‑itemizers may now deduct:

• Charitable cash donations up to $1,000 (or $2,000 for married filing jointly); permanent starting in 2026; no phaseout.
• Tip income (up to $25,000) for 2025–2028; phases out starting at $150,000 MAGI ($300,000 for married filing jointly).
• Overtime pay up to $12,500 (or $25,000 for married filing jointly) for 2025–2028; phases out starting at the same thresholds as for tip income.
• Interest on car loans up to $10,000 for 2025–2028; phases out starting at $100,000 MAGI ($200,000 for married filing jointly); applies only to new U.S.‑assembled cars that are owned (not leased).

Health and education updates:

Several provisions expand what counts for tax‑advantaged savings or deductible expenses, offering more flexibility in health care and education planning:

• 529 plan uses expanded for qualified educational expenses, including postsecondary credentialing and expanded K–12 expenses beginning July 4, 2025, and annual tax‑free withdrawals for K–12 expenses doubled to $20,000 per beneficiary (beginning in 2026).
• More plans qualify as high‑deductible health plans (HDHPs), including bronze Affordable Care Act (ACA) plans. People covered under HDHPs are eligible to contribute to Health Savings Accounts (HSAs).
• Introduction of “Trump accounts” for children—new tax‑advantaged savings option that could be used at age 18 and later for education and other purposes. (See Trump investment accounts for children section for additional details.)

Changes that may require action:

Some changes have immediate or near‑term deadlines, meaning now is the time to review your plans. These areas warrant closer attention:

• Medicaid work/community engagement requirements for certain adults.
• Clean energy credits (like vehicles and home efficiency upgrades) are ending soon.
• Student loan repayment plans and federal borrowing rules are being overhauled.

What these changes could mean for you

While the tax law is packed with details, the real question is: How do these changes affect your day‑to‑day planning? Below are a few examples of where the updates might make a meaningful difference—along with practical tips to help you take advantage of new opportunities.

SALT cap raised (phased out starting at $500K): More ability to itemize

Especially if you live in a high‑tax state, the increase in the SALT cap from $10,000 to $40,000 could make itemizing worthwhile again. The $30,000 SALT deduction increase is phased out starting at MAGI of $500,000 for both individuals and married filing jointly filers. The phaseout reduces the deduction by 30% of income over the threshold. For instance, an individual or married couple with an income of $525,000 would be eligible to deduct up to $32,500 of state and local taxes, assuming they itemize. (The $30,000 increase in the limit under the new law is reduced by $7,500, or 30% of the $25,000 income over $500,000.)

Planning tip: Individuals and married couples with income over $600,000 would be fully out of the $30,000 SALT deduction increase and would be capped at a SALT deduction of $10,000. Effectively, income between $500,000 and $600,000 may be taxed at a very high federal marginal rate, up to 45.5%. Taxpayers in higher tax states who want to maximize their SALT deduction might consider actions to keep their adjusted gross income below $500,000. For workers, this might mean maxing out pretax 401(k) contributions or HSA contributions. For retirees, it may make sense to pull a portion of income from tax‑free and taxable sources with limited capital gains exposure.

New $6,000 senior deduction

For investors 65 and older, this new deduction could reduce taxable income substantially—but it’s income‑tested and scheduled to end after 2028.

Example: A 68‑year‑old couple with $140,000 MAGI would be eligible for the full deduction: $6,000 apiece, or $12,000. But if that couple earned $180,000, they would face a partial phaseout because their income is over the $150,000 threshold. In this case, it would reduce the deduction by 12% of the $30,000 income over $150,000 (30,000 × 12% = $3,600. So their deduction would be $8,400 ($12,000 – $3,600).

Planning tip: Income timing matters—strategically taking withdrawals from Roth versus traditional accounts could help keep MAGI below the phaseout thresholds.

Medicaid: New work requirements and possible state changes

Beginning in 2027—with states given the option to start implementing these earlier—nondisabled adults ages 19–64 on Medicaid must meet a 80‑hour‑per‑month requirement through work, education, training, or community service. States will have flexibility in enforcement, and federal funding reductions could lead to stricter eligibility rules or income thresholds.

Planning tip: If you’re on Medicaid, stay informed on your state’s rules—they may adjust income thresholds or coverage practices in response to funding changes. Begin exploring options now for meeting the engagement requirement or alternative coverage if eligibility changes. Note that pregnant women, individuals with disabilities, and caregivers may be exempt from the new requirement.

Student loan and education benefit updates

Most income‑driven repayment plans will be eliminated by July 2026, replaced by two simplified options: one standard plan and the Repayment Assistance Plan (RAP). Only one existing income‑driven plan, the Income‑Based Repayment (IBR) Plan, will be grandfathered, so borrowers using other plans will need to make a switch. Federal borrowing limits will also tighten, especially for graduate students.

Planning tip: If you or your child are considering higher education, consider your borrowing plan carefully. Be aware of what the eventual payments could be, and don’t count on a significant portion of the loan being ultimately forgiven. If the new borrowing limits mean you would have to rely on private loans, you should take a hard look at the total cost of different colleges.

If you currently have federal student loans, review your current repayment plan—even if it will still be available, don’t assume it’s still the best option. The calculations of monthly payments could be very different, and the numbers will change as your income changes. The new RAP will be less generous on forgiveness but will stop unpaid interest from capitalizing, which could reduce your costs in the long term. If you’re unlikely to qualify for forgiveness, consider accelerating repayment now if you can afford it to minimize the interest you pay.

Energy tax credits are ending soon

Planning to buy an electric vehicle or upgrade your home’s insulation or HVAC system? You’ll want to act fast:

• Clean vehicle credits end after September 30, 2025.
• Home energy‑efficiency upgrades must be completed by December 31, 2025 to qualify.

Planning tip: Consider scheduling installations or purchases soon to secure the credits.

Trump investment accounts for children

A new savings vehicle, with some similarities to a Traditional individual retirement account (IRA), allows up to $5,000 per year to be contributed for U.S. citizen children under age 18. There are many nuances to these accounts, including some aspects of the law that will need to be clarified.

Contributions can come from three sources:

• One‑time federal seed contribution: $1,000 per eligible child (for births in 2025 through 2028)
• Parent or other contributions: Up to $5,000 per year (indexed to inflation beginning in 2028)
• Employer contributions: Up to a $2,500 contribution is excluded from the employee’s income (counts toward the $5,000 annual contribution limit; while this is likely an annual limit, as opposed to a lifetime cap, it needs to be clarified)

Early withdrawals: Distributions are not allowed before age 18. Distributions before age 59½ face a 10% penalty, with the existing exceptions available to IRAs, including qualified higher education expenses and $10,000 for first home purchases.

Investment structure: Funds must be invested in a low‑cost index fund of primarily U.S. companies.

Planning tip: This account grows tax‑deferred but is locked until age 18 with limited investments options. With that in mind, it’s most appealing if your employer offers the optional contribution—be on the lookout for a new program added to your benefit lineup. It can also be appealing to families with significant savings capacity, who can afford to think very long term for their children and aren’t concerned with the significant limitations before age 18 and age 59½.

For most people interested in primarily saving for their child’s education, a 529 plan offers a variety of benefits over the Trump account, including tax advantages. Distributions used to pay for qualified education expenses are free from federal and state taxes, helping you keep more of your savings when compared to a similar investment where the distributed earnings are taxed. You may also be eligible for a state income subtraction when you contribute to a 529 plan. And with the recent expansion of approved uses, 529 plans now provide even more flexibility for families.

Charitable giving: New opportunities—and new limits

The new tax law reshapes charitable giving rules in ways that could affect your strategy—whether you itemize or take the standard deduction.

The good news:

• Non‑itemizers get a break: Deduct up to $1,000 ($2,000 for joint filers) even without itemizing, starting in 2026.
• Higher SALT cap: Raised to $40,000 (through 2029), making itemizing more feasible, especially for residents of high‑tax states.

The not‑so‑good news:

• New giving floor: Itemizers must donate at least 0.5% of income before deductions count. This is similar to how medical expenses can be itemized—only after reaching a percentage of income.
• Income phaseouts: Some deductions shrink at higher income levels—that might result in charitable contributions not ultimately being itemized if the total is below the standard deduction.

Planning tip: If you’re close to the new thresholds or want to limit the impact of the 0.5% threshold, consider bunching donations into certain years rather than giving the same amount each year. One way to manage this strategy is by using a donor‑advised fund to lock in deductions now while retaining flexibility for future gifts.

More flexibility for HSA‑eligible plans

Previously excluded health plans—like ACA bronze plans or those with no deductibles for telehealth—may now qualify as HDHPs, letting you contribute to an HSA.

Planning tip: If you have been ineligible for HSAs because your plan didn’t qualify, revisit it this open enrollment season. Health Savings Plans can be a very tax‑effective way to save, even for medical expenses far into the future.

Final thoughts: What to do next

While many of these changes shape the tax landscape for years to come, a few require attention now—particularly decisions about clean energy incentives that expire soon, adjustments to student loan repayment strategies, and whether itemizing deductions could benefit you in light of the higher SALT cap and new charitable giving rules.

With many provisions now permanent or extended, the uncertainty around future tax policy has eased, giving you more confidence to plan long term—whether that’s managing income timing, revisiting your retirement drawdown strategy and Roth conversions, or considering new savings options like Trump accounts.

As always, the best approach is personal. Your income, life stage, and financial goals all play a role in how these rules apply to you. If you’re unsure where to start, talk with a tax professional or financial advisor who can help you interpret the changes, spot opportunities, and avoid potential pitfalls. Acting now—while options are fresh and timelines are clear—can help you stay ahead and make the most of the new tax landscape.