So, you've probably heard the rumors that the sky was supposed to fall on January 1, 2026. For years, tax pros and talking heads warned us about the "tax cliff"—that moment when the 2017 Tax Cuts and Jobs Act (TCJA) was scheduled to expire. If you’re like most people, you were bracing for your tax bill to suddenly skyrocket back to pre-2017 levels.
But things changed fast.
Basically, the "One Big Beautiful Bill" (OBBB) happened. Signed into law on July 4, 2025, this massive legislative package didn't just kick the can down the road. It essentially grabbed the trump's tax cuts 2025 provisions and made the big ones permanent. Honestly, if you're trying to figure out how much you're going to owe the IRS this year or next, the old "expiration" rules are mostly out the window.
The reality is a bit of a mixed bag, though. While the core brackets stayed low, the new law added a ton of weird, specific layers—like new rules for waiters, people working overtime, and even folks buying American-made SUVs.
The Big "Permanency" Play: What Stayed Put
The most important thing to realize is that those seven tax brackets we’ve lived with since 2017 aren't going anywhere. Before this new law passed in July, we were looking at a jump where the 37% top rate would have snapped back to 39.6%, and the 12% bracket would have climbed to 15%.
That didn't happen.
Instead, the trump's tax cuts 2025 extension made those lower rates the new law of the land. For the 2025 tax year (the ones you're filing right now in early 2026), the standard deduction also got a nice bump.
- Single filers: $15,750
- Married filing jointly: $31,500
- Head of household: $23,625
If you're already looking ahead to your 2026 planning, those numbers climb again because of inflation. For 2026, a married couple will see a standard deduction of $32,200. That’s a massive chunk of change you don't even have to think about taxing. It’s kinda wild when you realize that before 2017, that deduction was roughly half what it is now.
The "No Tax on Tips" and Overtime Twist
One of the flashiest parts of the new 2025 law—and something Trump campaigned on hard—is the "No Tax on Tips" provision. If you work in a service job, this is probably the biggest change to your finances in a generation. But, like everything with the IRS, it’s not as simple as "free money."
Starting in 2025 and running through 2028, workers in "traditional tipping occupations" can exclude up to $25,000 in tips from their federal income tax. We're talking servers, bartenders, and hair stylists.
There's a catch, though.
The IRS recently put out guidance (Notice 2025-57) because they were worried people in high-paying "service" jobs—like lawyers or doctors—might try to claim their fees were "tips." To stop that, they’ve limited the deduction to specific job categories and added an income cap. If you make over $150,000, you're basically out of luck on this one.
Then there’s the overtime deduction. This one is brand new. If you're a non-exempt hourly worker and you pull more than 40 hours a week, you can deduct the "extra" part of your overtime pay—up to $12,500 a year.
Expert Note: If you make $20/hour and your overtime rate is $30, you only deduct the $10 "premium" portion. You still pay tax on the base $20. It's a bit confusing, and honestly, a lot of people are going to mess this up on their returns this year.
Why High-Tax States Are Breathing Easier (For Now)
If you live in a place like New York, California, or New Jersey, you've probably spent the last few years complaining about the "SALT cap." That $10,000 limit on state and local tax deductions felt like a targeted strike on blue states.
The 2025 bill actually gave some relief here, which was a bit of a surprise to political observers. The cap jumped from $10,000 to $40,000 for the 2025 tax year.
It’s not a free-for-all, though. This $40,000 cap is scheduled to stick around through 2029, but it starts phasing out if your modified adjusted gross income (MAGI) hits $500,000. If you’re a high-earner in a high-tax state, you’re finally getting to deduct more of those property taxes, but only if you aren't too wealthy.
The Family Impact: Credits and "Trump Accounts"
The Child Tax Credit (CTC) was another major point of contention. Under the old TCJA, it was $2,000. It was supposed to drop to $1,000 in 2026.
The new 2025 law bumped it to $2,200 instead.
It’s also indexed for inflation now, which is a big win for parents. However, if you were hoping for the massive monthly checks we saw during the pandemic, that’s not what this is. The refundable portion—the part you get back even if you don't owe taxes—is capped at $1,700 for 2025 and 2026.
There's also this new thing called "Trump Accounts." It's basically a government-seeded savings account for kids. If you have a baby between 2025 and 2028, the government drops $1,000 into a tax-exempt account. You can add up to $5,000 a year of your own money, and it grows tax-free for education or a first home. It’s sort of like a 529 plan on steroids.
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Small Business: The QBI Deduction is Here to Stay
For the entrepreneurs and side-hustlers out there, the Section 199A deduction was the "holy grail" of the 2017 tax cuts. It allowed pass-through businesses (like LLCs and S-corps) to deduct 20% of their qualified business income.
This was 100% supposed to die at the end of 2025.
The trump's tax cuts 2025 legislation made this permanent. This is huge for business valuation. Before this, small business owners were hesitant to make long-term investments because they didn't know if their effective tax rate was about to jump by 20%. Now, that certainty is there.
The bill also brought back 100% "bonus depreciation." If you buy equipment for your business—computers, machinery, or even certain vehicles—you can write off the entire cost in the first year. This had been phasing down (it was only 40% in 2025 before the new law), but the OBBB restored it to the full 100%.
What about the "Death Tax"?
Wealthy families were terrified that the estate tax exemption would be cut in half. In 2024, you could pass down about $13.6 million tax-free. Without the 2025 extension, that would have dropped to around $7 million.
Instead, the new law pushed it even higher. For 2026, the exemption is a staggering $15 million per person. If you're married, you and your spouse can pass down $30 million to your heirs without the federal government taking a cent in estate taxes.
The Costs: Where is the Money Coming From?
You might be wondering: if everyone is getting tax cuts, how is the government paying for it?
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Well, the bill actually killed a few things to balance the scales. Most notably, it gutted the clean energy credits from the previous administration's Inflation Reduction Act. The federal EV tax credit? Gone. The Residential Clean Energy Credit (for solar panels)? It’s being accelerated to end by December 31, 2025.
They also added a new 1% excise tax on "remittance transfers"—basically, when people send money abroad using cash or money orders. That starts in 2026 and is expected to bring in billions.
Your 2026 Tax Action Plan
Look, the tax code just got a lot more complicated while trying to stay "simple." Here is what you should actually do right now:
- Check your withholding: If you're a tipped worker or you do a lot of overtime, you might be overpaying your mid-month taxes. Talk to your payroll person about the new 2025 deductions so you get that money in your paycheck instead of waiting for a refund in 2027.
- Re-evaluate your business purchases: With 100% bonus depreciation back on the table, it might make sense to pull forward that equipment purchase you were planning for next year.
- Look at your "SALT" strategy: If you’ve been skipping itemization because of the $10,000 cap, run the numbers again. With a $40,000 cap, it might finally make sense to itemize your deductions instead of taking the standard one.
- VIN check: If you're buying a car and want the new vehicle interest deduction (up to $10,000), make sure it was assembled in the U.S. You'll need the VIN for your tax return.
The trump's tax cuts 2025 changes are massive, and honestly, we're still figuring out the fine print. But one thing is for sure: the "cliff" is gone, replaced by a whole new landscape of credits and deductions. Keep your receipts. You're going to need them.