PART II: One, Big, Beautiful Bill

 

Editorial Note

This is the second in a series of articles on the proposed U.S. spending bill. The spending bill is 1,038 pages long and amends various laws to amend, add or rescind certain spending initiatives for the U.S. federal government. Referred to as the One, Big, Beautiful Bill, this bill is very difficult to follow but it's your tax dollars so you should know what is being spent.  The bill is not law and subject to change.

 

Executive Summary

This section of the proposed legislation, titled “Additional Tax Relief for American Families and Workers,” introduces multiple federal tax deductions and credits to reduce the tax burden for working individuals and families between 2025 and 2029. Key provisions include tax deductions for tips and overtime, increased deductions for seniors, interest deductions on car loans, and enhanced support for child care, family leave, adoption, and educational scholarships.

 

Key Provisions

No Tax on Tips (Sec. 110101)

• What Changed: A new deduction is created for qualified tips, allowing workers to deduct cash tips from their taxable income, subject to various limitations and reporting requirements (Sec. 224).
• What It Means: Individuals in traditionally tipped occupations can reduce taxable income by deducting their reported tips, unless they exceed certain income thresholds or work in specific service industries (like law or health). This only applies through 2028.
  (Reference: Sec. 224(a)-(f))

 

No Tax on Overtime (Sec. 110102)

• What Changed: A deduction for “qualified overtime compensation” is introduced for 2025–2028 (Sec. 225).
• What It Means: Employees can deduct their federally mandated overtime wages from taxable income, provided they are not highly compensated employees and meet eligibility requirements.
  (Reference: Sec. 225(a)-(e))

 

Enhanced Deduction for Seniors (Sec. 110103)

• What Changed: Seniors receive an additional $4,000 standard deduction from 2025–2028, subject to an income phase-out starting at $75,000 ($150,000 for joint filers) (Sec. 63(f)(5)).
• What It Means: Seniors will see increased tax relief unless their income is above the phase-out threshold, in which case the benefit gradually decreases.
  (Reference: Sec. 63(f)(5)(A)-(F))

 

No Tax on Car Loan Interest (Sec. 110104)

• What Changed: Interest paid on qualified car loans is not considered personal interest and is therefore deductible for tax years 2025–2028, up to $10,000 (Sec. 163(h)(4)).
• What It Means: Taxpayers can deduct interest on loans for new personal vehicles assembled in the U.S., with restrictions based on income and vehicle type. For example, loans on fleet or salvaged vehicles don't qualify.
  (Reference: Sec. 163(h)(4)(A)-(E))

 

Increased Employer-Provided Child Care Credit (Sec. 110105)

• What Changed: Increases the credit rate from 25% to 40% (or 50% for small businesses) of qualified child care expenses, and raises the credit limit to $500,000 or $600,000, respectively. Also expands eligible arrangements (Sec. 45F).
• What It Means: More employers, especially small businesses, will have higher incentives to provide or subsidize child care, making such benefits more accessible to workers.
  (Reference: Sec. 45F(a)-(g))

 

Expanded Paid Family and Medical Leave Credit (Sec. 110106)

• What Changed: The credit now includes employer-paid insurance premiums for family leave. New eligibility criteria and a broader definition of paid leave are introduced (Sec. 45S).
• What It Means: Employers can get a tax credit either for wages paid during leave or for insurance premiums. The law provides flexibility but also sets conditions to avoid abuse.
  (Reference: Sec. 45S(a)-(d))

 

Enhanced Adoption Credit (Sec. 110107)

• What Changed: A portion (up to $5,000) of the adoption credit becomes refundable, and inflation adjustments are introduced (Sec. 23(a)(4), 23(h)).
• What It Means: Families adopting children can receive part of the tax credit as a refund even if they owe no tax. Credit limits will now keep up with inflation.
  (Reference: Sec. 23(a)(4), (h))

 

Tribal Recognition in Adoption Credit (Sec. 110108)

• What Changed: Indian tribal governments are recognized for determining “special needs” in adoption cases (Sec. 23(d)(3)).
• What It Means: Tribal determinations now carry the same weight as state determinations when claiming the adoption credit for children with special needs.
  (Reference: Sec. 23(d)(3))

 

Scholarship Granting Organization Credit (Sec. 110109)

• What Changed: A new individual tax credit is created for donations to scholarship organizations that fund K–12 education, including homeschooling (Sec. 25F).
• What It Means: Taxpayers can get a federal tax credit of up to $5,000 for donations to qualifying educational scholarships, subject to a national cap and income limits. This supports school choice initiatives.
  (Reference: Sec. 25F(a)-(g))

 

Source:https://www.congress.gov/bill/119th-congress/house-bill/1/text