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What Trump’s New Tax and Spending Bill May Mean for You Thumbnail

What Trump’s New Tax and Spending Bill May Mean for You

At Dorsey Wealth Management, we know that new legislation can sometimes feel overwhelming, especially when it’s nearly a thousand pages long. But understanding how these changes might impact your financial life is an important part of planning for your future.

Last week, a sweeping new law called the “Opportunity, Budget, and Border Bill Act” (OBBBA) was signed into effect after a close vote in Congress. The legislation includes roughly $4.5 trillion in tax reductions over a decade, primarily through cuts to corporate and individual income taxes, along with other related tax adjustments. It is projected to increase the federal deficit by $3.3 trillion. To partially offset this, the law will enact $3.5 trillion in spending cuts, with much of the reduction focused on federal social programs such as Medicaid and food stamp benefits, end tax credits tied to clean energy, and overhaul federal student loans.

Because these changes are so extensive, we’ve put together a summary of what’s in the bill and what it might mean for you and your family.

Extension of the TCJA Tax Provisions and New Deductions

  • The OBBBA makes many of the TCJA provisions permanent, including tax brackets (topping out at 37%) with certain inflation adjustments.
  • The OBBBA made the expiring federal estate tax exemptions permanent and increased the limits to $15 million and $30 million for single/MFJ taxpayers, respectively, indexed for inflation. This would also apply to the generation-skipping transfer tax (GSTT).
  • The controversial SALT deduction for state and local taxes is increased from $10,000 to $40,000 effective from 2025 through 2029 for those with an adjusted gross income (AGI) under $500,000 (see more on how this impacts high earners below).
  • The Act extends the TCJA standard deduction along with an increase to $15,750 for single filers, $23,625 for head of household, and $31,500 for MFJ taxpayers, inflation-adjusted after 2025. The extra deduction for those 65 or older and/or blind will increase to $2,000 for single filers and $1,600 per spouse for MFJ filers in 2025
  • There is a new “senior deduction” of $6,000 for those 65 and over with an AGI of less than $75,000 single/$150,000 married from 2025 through 2028. Phaseouts occur above these. This new deduction supplements the extra standard deduction for those 65 or over and/or blind. 
  • The Child Tax Credit is now permanent and was increased from $1,750 (2025) to $2,200 in 2026).
  • Higher-income taxpayers may enjoy the now-permanent higher alternative minimum tax (AMT) thresholds taking effect in 2026. 
  • The OBBBA simplifies the overall limitation on itemized deductions. It also eliminates miscellaneous itemized deductions for all but educator expenses and creates a percentage cap on deductions for higher-income individuals. 
  • The Act includes deductions for tips and overtime pay. For tax years 2025-2028, up to $25,000 in tips and $12,500 (single), $25,000 (married) in hourly overtime wages (not salaries) may be deducted with a phase-out for higher income earners ($150,000 single, $300,000 joint).
  • New car loan interest may be deductible up to $10,000 from 2025-2028. Eligible vehicles must have final assembly in the USA, and this deduction phases out after $100,000 of income.
  • Federal financial aid and student loans underwent significant changes. Key among them: greater eligibility for low-income Pell Grants, but lower caps on undergraduate and graduate student loan limits as well as low caps on parental loans (PLUS) at just $20,000 per student per year and a $65,000 cap. 
  • The legislation expanded the Section 199A deduction, also known as QBID for small businesses.

The New SALT Deduction: What High Earners Need to Know

The OBBBA significantly raises the cap on the state and local tax (SALT) deduction from $10,000 to $40,000 — but only through tax year 2029, and with a critical caveat for high-income households.

For those with adjusted gross income (AGI) over $500,000, the expanded SALT deduction phases out sharply. Specifically, the deduction is reduced by 30% of the amount your AGI exceeds $500,000. This means your effective tax rate on income above that threshold can be substantially higher than your nominal marginal rate.

For example:

  • If you earn $600,000, the additional $100,000 of income reduces your SALT deduction by $30,000 (30% of the excess over $500,000). That means your taxable income actually increases by $130,000, pushing more income into higher tax brackets and resulting in an effective federal marginal tax rate on that slice of income of roughly 45%, before considering state taxes, payroll taxes, or other impacts.

This has meaningful planning implications. For high-earning professionals, there’s a clear incentive to carefully manage income recognition. Whether that means slowing Roth conversions, timing capital gains, or even reducing hours, thoughtful planning could help keep AGI under the phaseout threshold and preserve more of the expanded SALT deduction.

Greater Savings With the New Act

  • Section 529 educational savings accounts may now be used for more than just K-12 tuition, including books, tutoring, test preparation, and homeschool materials; and allowable distributions are expanded from $10,000 to $20,000 per year. Distributions from these accounts are also now tax-free for special education, such as speech and occupational therapies, and learning software expenses. 
  • Newborn savings accounts may now be established and seeded with $1,000 from the federal government from 2025-2028. Further contributions may be added up to $5,000 per year and may be used for educational, first home purchase, or business start-up expenses after age 18.

What Was Taken Away

Along with the projected $3.3 trillion of additional national debt, the major criticism of the legislation was the reduction of federal Medicaid and the Supplemental Nutrition Assistance Program (SNAP). There were also reductions in federal spending on many other programs. 

The new legislation:

What Does All This Mean for Your Financial Future?

The “Opportunity, Budget, and Border Bill Act” is a significant landmark piece of legislation, and its wide-ranging provisions are likely to touch many aspects of your financial life, now and in the years ahead. As the details continue to unfold, it will take time for professionals across the financial, tax, and legal landscapes to interpret how these new rules may play out for each individual situation.

At Dorsey Wealth Management, we’re here to help you navigate what this means for you. If you’d like to explore how these changes might fit into your retirement strategy or overall financial picture, we invite you to schedule a complimentary 30-minute introductory call.

Reach out to us at (310) 370-7776 or angela@dorseywealth.com to start the conversation. We’d love the opportunity to learn about what matters most to you and discuss how we can support your vision for the future.

About Angela

Angela Dorsey is the founder and financial advisor at Dorsey Wealth Management, a fee-only financial planning firm based in Torrance, California, helping women prepare for retirement. Angela earned a BS in computer science from Loyola Marymount University, an MBA from UCLA Anderson School of Management, and spent 20 years as a Senior Compensation Specialist in large corporations before becoming a CERTIFIED FINANCIAL PLANNER® professional and a Registered Investment Advisor (RIA). That background gave her the tools to couple with her passion for empowering women to make the best financial decisions possible. Angela lives in Torrance, California, with her husband. She enjoys spending time at the beach or surrounded by nature. To learn more about Angela, connect with her on LinkedIn.