Individual Provisions Tax Summary
President Trump signed H.R. 1, One Big Beautiful Bill Act (OBBBA), into law on July 4, permanently
extending key Tax Cuts and Jobs Act (TCJA) provisions and introducing new tax provisions. The
new legislation introduces additional tax relief for middle-class families and workers while aiming
to simplify compliance, reduce taxable income for certain earners and broaden access to tax
benefits.
Building on the 2017 TCJA, the OBBBA retains popular elements such as reduced individual
tax rates and the enhanced standard deduction. It also introduces notable updates, including a
deduction for qualified overtime, expanded child tax credit and a deduction for seniors. It also
launches Trump Accounts for young savers.
The following outline of the individual tax provisions of the OBBBA is intended to help tax
professionals navigate how these changes may affect planning and filing strategies.
Extension of reduced income tax rates
This provision permanently extends the individual income tax rates introduced by TCJA, which
were previously set to expire after Dec. 31, 2025. The amendment to Section 1(j)(1) eliminates the
sunset clause, ensuring that the reduced marginal rates of 10%, 12%, 22%, 24%, 32%, 35% and
37% remain in place.
Takeaways
This provision is intended to:
• Lock in the TCJA’s lower marginal tax rates
• Prevent automatic rate hikes in 2026
• Provide continued tax relief to individuals and families
• Control the way bracket thresholds grow with inflation for better targeting of rate brackets
Extension and enhancement of increased standard deduction
There are two changes to the standard deduction rules under §63(c).
First, the law permanently preserves the TCJA’s enhanced standard deduction amounts. Under
prior law, the increased deduction, initially established for tax years 2018 through 2025, was set to
revert to pre-2018 levels beginning in 2026. By eliminating the Jan. 1, 2026, sunset provision under
§63(c)(7), the new legislation ensures that the higher TCJA deduction amounts will remain in effect
indefinitely beyond 2025.
Second, the law increases the base standard deduction amounts beginning in tax year 2025. For
married taxpayers filing jointly (MFJ), the new base deduction is $31,500, representing an increase
over the inflation-adjusted TCJA amount of approximately $30,000, which was originally slated for
2025. The new base amount for single filers is $15,750, exceeding the prior 2025 inflation-adjusted
amount of $15,000. These amounts are subject to future inflation adjustments using the chained
Consumer Price Index (CPI) methodology.
Why it matters
• This provision offers broad-based tax relief by:
o Reducing taxable income for all filers who don’t itemize
o Making the standard deduction a more appealing alternative to itemizing, especially
when combined with the continued cap on state and local tax (SALT) deductions
• Low- and middle-income taxpayers benefit most, as a higher deduction lowers their tax
liability directly
Takeaways
• Locks in and expands the TCJA’s shift toward a higher standard deduction system
• Reduces reliance on itemized deductions
• Delivers direct tax savings to most U.S. households starting in 2025
Termination of deduction for personal exemptions other than the
temporary senior deduction (new)
Permanent repeal of the personal exemption
The personal exemption, previously set at $4,050 per individual, was initially suspended for
tax years 2018 through 2025. That suspension is now permanent, eliminating the availability of
personal exemptions for all taxpayers and dependents going forward. Although the exemption is
no longer factored into tax calculations, the inflation-adjusted amounts remain relevant in specific
contexts, most notably when determining whether an individual qualifies as a dependent under the
qualifying relative rules.
Takeaways
Personal exemption termination made permanent
• Under the Tax Cuts and Jobs Act (TCJA) (2018-2025), the personal exemption ($4,050 per
person) was temporarily suspended
*H.R. 1 makes this suspension permanent by removing the expiration date (Jan. 1, 2026) in
§151(d)(5)
• Personal exemptions are no longer allowed for any taxpayer or dependents
NATP observation: The personal exemption amounts, including annual inflation adjustments,
continue to exist “behind the scenes” to determine income requirements for a qualifying relative,
for example.
Temporary deduction for seniors
Beginning in tax year 2025, and continuing through 2028, individuals age 65 or older by year-end
may claim a new deduction of $6,000. On a joint return, each spouse may qualify, allowing for up
to $12,000 in total deductions if both meet the age requirement.
The deduction is subject to a 6% phaseout based on a modified adjusted gross income (MAGI)
exceeding $75,000 for single filers and $150,000 for joint filers. For this purpose, MAGI includes
income typically excluded under specific foreign income provisions, such as those in IRC §§911,
931 and 933.
The senior must possess a valid Social Security number (SSN) to claim the deduction. An omission
or invalid SSN is treated as a mathematical or clerical error, authorizing the IRS to adjust the return
accordingly. In addition, married individuals must file a joint return to be eligible; married filing
separately is not permitted for this deduction.
NATP observation: The new deduction for seniors partly addresses President Trump’s campaign
promise to make Social Security benefits received nontaxable. H.R. 1 did not accomplish that
Takeaways
Extension with changes to child tax credit (CTC) Several changes to the CTC will take effect beginning tax year 2025. The increase from $1,000
to $2,000 per child, enacted initially under TCJA and scheduled to expire after 2025, is made
permanent for tax purposes.
Effective for tax year 2025, the maximum credit per qualifying child increases from $2,000 to
$2,200. Beginning in 2026, this amount is subject to annual inflation adjustments. The refundable
portion of the credit remains capped at $1,400 per child but will also be indexed for inflation
beginning in 2025.
To qualify for the CTC, a child must have a valid SSN issued to a U.S. citizen or certain legal
residents. For joint returns, at least one spouse must also have a valid SSN. SSNs must be issued
before the return due date, generally April 15. If a valid SSN is not provided, the IRS may treat the
omission as a mathematical or clerical error and disallow the credit.
Both the $2,200 credit maximum and the $1,400 refundable cap are adjusted for inflation using
the chained Consumer Price Index, based on base years of 2017 and 2024, respectively. These
amounts will round down to the nearest $100.
Effective date: Applicable to tax years beginning after Dec. 31, 2024
Takeaways
Enhancement of the child and dependent care tax credit
Effective for tax years beginning after Dec. 31, 2025, the child and dependent tax credit is
enhanced in two key ways.
First, the maximum applicable percentage increases from 35% to 50%. This change provides a
larger credit for lower-income taxpayers with qualifying child and dependent care expenses.
Second, the phase-out structure is revised to include two tiers based on adjusted gross income
(AGI).
• Under Tier 1, the credit percentage is reduced by one percentage point for each $2,000 (or
fraction thereof) of AGI over $15,000. However, the percentage cannot be reduced below
35% in this phase.
• Under Tier 2, for AGI above $75,000 ($150,000 for joint filers), the percentage is further
reduced by one percentage point for each $2,000 ($4,000 for joint filers) over that threshold.
This reduction continues until the percentage reaches the statutory floor of 20%.
Prior law provided a maximum credit rate of 35%, with a single-phase reduction down to 20%
based on AGI. The new two-tier system preserves more credit for taxpayers with moderate
incomes while continuing to limit the benefits at higher income levels.
Effective date: Applicable to tax years beginning after Dec. 31, 2025.
Example 1: Low-income, single parent
• Filer: Single parent
• AGI: $14,000
• Qualifying expenses: $6,000
• Applicable %: 50% (no phase-out)
• Credit: 50% of $6,000 = $3,000
Example 2: Single filer with AGI = $25,000
• First $10,000 over $15,000 5 intervals of $2,000 5% point reduction
• Applicable % = 50% - 5% = 45%
• Qualifying expenses: $4,000
• Credit: 45% of $4,000 = $1,800
Example 3: Joint return with AGI = $160,000
• First, reduce from 50% to 35% as income exceeds $15,000
60 intervals over $15,000 = 60% reduction capped at 35%
• AGI exceeds $150,000 by $10,000 3 intervals of $4,000 (round up)
Further 3% point reduction from 35%
Final applicable % = 35% - 3% = 32%
• Qualifying expenses: $6,000
• Credit: 32% of $6,000 = $1,920
Example 4: Joint return with AGI = $195,000
• Income > $150,000 by $45,000 = 12 intervals of $4,000
12% reduction from 35% applicable % = 35% - 12% = 23%
• Qualifying expenses: $6,000
• Credit: 23% of $6,000 = $1,380
NATP observations:
• No matter how high the AGI, the credit rate won’t fall below 20%.
• Still subject to existing expense caps ($3,000 for one, $6,000 for two or more dependents)
Enhancement of the dependent care assistance contributions
Beginning in tax year 2026, §129(a)(2)(A) increases the annual contribution limits for employer
provided dependent care assistance programs (DCAPs), commonly referred to as dependent care
flexible spending arrangements (FSAs). The new limits are $7,500 per year ($3,750 for married
individuals filing separately), up from the current $5,000 ($2,500 MFS).
DCAPs allow employees to set aside pre-tax income for qualifying dependent care expenses, such
as day care, preschool and certain adult care. Contributions are excluded from gross income, reducing federal income, Social Security and Medicare taxes.
Effective date: Applicable to tax years beginning after Dec. 31, 2025.
NATP observations:
• The increased limit helps families with higher annual child care costs, allowing greater
tax-preferred deferral.
• This change is especially useful for two-earner households with substantial qualifying care
expenses.
• If a taxpayer claims the child and dependent care tax credit, the same expenses cannot be
used for the credit and the DCAP exclusion
Limitation on individual deductions for certain state and local taxes,
etc. (SALT)
Under the revised provisions, the SALT deduction cap increases to $40,000 for tax year 2025. The
limit rises slightly to $40,400 for 2026, and for years 2027 through 2029, it will be adjusted annually
to 101% of the prior year’s cap. Despite these increases, the deduction limit will revert to the
original $10,000 cap beginning in 2030 and for all subsequent years.
Importantly, eligibility to claim the enhanced SALT deduction from 2025-2029 is subject to a MAGI
threshold. For 2025, taxpayers with MAGI exceeding $500,000 ($250,000 MFS) are ineligible for
the increased cap. These thresholds will adjust to $505,000 ($252,500 MFS) in 2026 and continue
to increase by 1% annually through 2029. The deduction will not fall below the original $10,000
($5,000 MFS), even for those exceeding the MAGI limits.
Additionally, the law preserves a key workaround known as the pass-through entity tax (PTET)
election. This provision allows certain state-level taxes paid by partnerships or S corporations to
be deducted at the entity level, with a deduction or credit flowing through to individual partners or
shareholders, depending on the applicable state’s law. Thus, the law offers a continued avenue for
mitigating the SALT cap’s impact.
Effective date: Applicable to tax years beginning after Dec. 31, 2024.
NATP observation: Early versions of the proposed changes to SALT excluded service-based
businesses from the new benefits. That provision was removed from the final bill.
No tax on tips (new)
This provision (§224) allows individuals to deduct certain cash tips from their taxable income. The
deduction is available for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029.
This applies to individuals who receive cash tips in an occupation that customarily and regularly
received tips on or before Dec. 31, 2024 (to be determined and published by the IRS). Both
employees and self-employed individuals may be eligible, but the deduction is limited for self
employed taxpayers if business expenses exceed income. Married taxpayers must file jointly to
claim the deduction.
The tips must be reported on IRS-approved forms, such as Form 4137, Social Security and
Medicare Tax on Unreported Tip Income, or employer-furnished wage statements (e.g., Forms
W-2, Wage and Tax Statement, Form 1099-NEC, Nonemployee Compensation, Form 1099-K,
Payment Card and Third Party Network Transactions, or other applicable statements). Additionally,
the taxpayer must provide a valid SSN on their Form 1040.
The deduction is capped at $25,000 per year and phases out if the taxpayer’s MAGI exceeds:
• $150,000 for individuals
• $300,000 for joint filers
The deduction is reduced by $100 for every $1,000 over the threshold. MAGI means the taxpayer’s
AGI for the taxable year increased by any amount excluded by §§911, 931 or 933.
Definition of qualified tips
Tips include cash, card-based payments and amounts distributed through tip-sharing
arrangements. To qualify as a tip, the payment must be made voluntarily by the customer, not
subject to negotiation and determined solely at the customer’s discretion. However, tips received
in a specified service trade or business (SSTB) as defined under §199A are excluded unless the
recipient is an employee of an employer not classified as an SSTB.
Additional provisions
Within 90 days of the bill’s enactment, the IRS will publish a list of qualifying occupations.
Beginning in 2026, IRS withholding tables will be updated to reflect the new deduction. Employers
who pay tips will face increased reporting requirements, including disclosing the amount of tips
and the recipient’s occupation. Additionally, the bill expands the FICA tip credit to cover beauty
service businesses, such as hair, nail, spa and esthetic services.
Effective date: Applicable to tax years beginning after Dec. 31, 2024.
No tax on overtime (new)
Taxpayers may deduct the amount of overtime compensation received during the taxable year,
provided the compensation is reported on either Form W-2 or on an information return per
§6041(d)(4). Only overtime that qualifies under Section 7 of the Fair Labor Standards Act of 1938
is eligible; that is, pay for hours worked in excess of the standard workweek, calculated at a rate
above the individual’s regular hourly rate.
Importantly, qualified overtime compensation excludes any amount categorized as qualified tips
under Section 224(d) of the Fair Labor Standards Act.
Deduction limitations
The deduction is subject to two primary limitations: a dollar cap and an income-based phaseout.
First, the maximum deduction is $12,500 for single filers and $25,000 for MFJ.
Second, the deduction is gradually reduced for higher-income taxpayers. For every $1,000 that a
taxpayer’s MAGI exceeds $150,000 ($300,000 MFJ), the deduction is reduced by $100.
For this purpose, MAGI includes AGI increased by any amounts excluded under §§911, 931 or
933.
Additional requirements
For taxable years beginning after Dec. 31, 2024, and before Jan. 1, 2029, a deduction is permitted
only when the taxpayer includes the recipient’s SSN on the return. Additionally, in the case of
married individuals as defined under §7703, the deduction is available solely if the taxpayer and
spouse file a joint return.
Effective date: Applies to tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029.
Example: Maria is a restaurant shift supervisor earning $20/hour. In 2026, she works 250 hours of
overtime at time-and-a-half.
• Regular rate: $20/hour
• Overtime pay: $10/hour × 250 hours = $2,500
• Maria’s AGI is $90,000
• Maria includes all relevant info on her tax return, including her SSN
Maria can deduct $2,500 from her taxable income under this section.
Example: Jason is a software engineer earning a high income and earns $20,000 of overtime pay
in 2026.
• Jason and his spouse have a joint AGI of $325,000
o Exceeds the $300,000 threshold subject to $100 reduction per $1,000 over
$325,000 - $300,000 = $25,000 over $2,500 deduction reduction
• He also forgot to file his Social Security number on his return
Result:
• His cap of $25,000 overtime deduction is reduced to $22,500
• Because he omitted his SSN, he loses the entire deduction due to compliance rules under
Section 225(d)
Additional notes
• This is an above-the-line deduction. Per IRC 62 (a): Taxpayers do not have to itemize to
claim. The deduction is added to the standard deduction for non-itemizers.
• IRS is authorized to regulate and prevent abuse (e.g., recharacterizing wages as
“overtime”).
• W-2s and 1099s must separately report overtime.
• This deduction is available for tax years 2025 through 2028.
Deductible car loan interest (new)
For tax years 2025 through 2028, interest paid on a loan to purchase a qualifying passenger
vehicle for personal use may be deducted under a temporary provision in §163(h)(4). To qualify, the
loan must be incurred after Dec. 31, 2024, and secured by a first lien on the vehicle. The interest
is only deductible if the taxpayer includes the vehicle’s identification number (VIN) on their return.
Refinancing of such loans is also eligible for the deduction, but only to the extent the refinanced
amount does not exceed the original loan principal.
However, the deduction is subject to several exclusions. Interest on loans for fleet sales,
commercial-use vehicles, leased vehicles, salvage-title vehicles or vehicles intended for scrap or
parts is not deductible. Additionally, loans from related parties, defined under §267(b) or §707(b)(1),
are excluded from eligibility.
Deduction limits
The deduction is capped at $10,000 of interest per taxable year. It is also phased out for higher
income taxpayers. The phaseout begins when a taxpayer’s MAGI exceeds $100,000 ($200,000 for
joint filers). The allowable deduction is reduced by $200 for every $1,000 (or part thereof) of MAGI
above the applicable threshold.
Qualified vehicle definition
To qualify, the vehicle must be intended for the taxpayer’s original use and primarily manufactured
for use on public roads. Eligible vehicles include cars, minivans, vans, SUVs, pickup trucks and
motorcycles, as long as they have at least two wheels and a gross vehicle weight rating (GVWR)
under 14,000 pounds. The vehicle must also be classified as a motor vehicle under the Clean Air
Act and assembled in the United States.
Availability to non-itemizers
Importantly, this deduction is available to both itemizers and non-itemizers. Under §63(b)(7),
taxpayers who do not itemize may claim this deduction as an above-the-line adjustment to
income.
Effective dates: Applies to tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029.
NATP observation: The interest incurred on business-use vehicles remains deductible for the
percentage
Mortgage interest deduction
Under current law, the deduction for qualified residence interest is limited to acquisition debt of up
to $1 million ($500,000 if MFS) for loans incurred on or before Dec. 15, 2017. The limit for loans
incurred after that date is $750,000 ($375,000 if MFS). These limitations, enacted under the TCJA,
were set to expire after 2025.
The OBBB makes the TCJA limitations permanent by removing the scheduled sunset date. As a
result, the $750,000 acquisition debt cap remains in effect indefinitely for post-2017 mortgages.
The new law also reinstates the deduction for mortgage insurance premiums (PMI), treating them
as qualified residence interest. The prior provision, which applied only through 2025, is amended
to allow deductibility for years beginning after 2017, without a sunset.
Effective date: Applies for tax years beginning after Dec. 31, 2025.
Takeaways
Changes to charitable contributions This amendment applies a 0.5% floor against the sum of charitable contributions that a taxpayer(s)
makes. Only the amount of charitable contributions above this floor can be deducted. Specifically,
amended §170(b)(1) states that individual taxpayers may only deduct charitable contributions
to the extent that the aggregate of their contributions exceeds 0.5% of their contribution base
(generally their AGI for the year).
This means taxpayers will not receive a tax benefit for the first 0.5% of their contribution base
donated to charity. Only amounts contributed beyond this threshold are eligible for a deduction,
subject to other existing percentage limitations for charitable deductions.
Effective date: Applicable tax years after Dec. 31, 2025.
Cash contributions limitation clarification
Section 170(b)(1)(G) was updated to clarify the 60-percent AGI limit for cash contributions to public
charities. The maximum deduction for cash contributions remains capped at 60 percent of the
taxpayer’s contribution base. Contributions under subparagraphs (A) and (G) are now coordinated
explicitly to avoid exceeding combined deduction limits, ensuring consistency in applying the
percentage of ceilings across different categories of charitable gifts.
Effective date: Applicable tax years after Dec. 31, 2025.
Charitable deduction for non-itemizers
This permanent charitable contribution deduction is available for taxpayers who do not itemize.
Specifically, the provision amends §170(p) to reinstate and increase the above-the-line deduction
limit for charitable contributions made by non-itemizing individuals:
• The maximum deduction for single filers is $1,000.
• The maximum deduction for married individuals filing jointly is $2,000.
Effective date: Applicable tax years after Dec. 31, 2025.
Takeaways
• Individual taxpayers cannot deduct the first 0.5% of their contribution base in charitable
contributions. For example, a taxpayer with $100,000 AGI must contribute more than $500
before any charitable deduction is allowed.
• Disallowed contributions due to the new floor can still be carried forward if total
contributions exceed other applicable deduction limits, preserving the tax benefit in future
years.
• Taxpayers with smaller charitable giving patterns or those with income volatility could see
deductions reduced or eliminated in low-income years. Planning to bundle donations in
alternate years or increase contribution levels may help maximize tax benefits.
• Updates to §170 ensure the new floor integrates smoothly with existing limitations on cash
gifts and other types of charitable contributions, preventing unintended overstatements or
conflicts.
Termination of miscellaneous itemized deductions
other than educator expenses
TCJA temporarily suspended miscellaneous itemized deductions subject to the 2% adjusted
gross income (AGI) threshold through 2025. These deductions included unreimbursed employee
expenses, tax preparation fees, investment expenses and other similar items.
This suspension becomes permanent by removing the sunset provision in §67(g). As a result,
taxpayers still cannot deduct a broad range of previously eligible expenses. Specifically,
deductions will be disallowed for unreimbursed employee costs, investment advisory fees, union
dues, tax prep fees, hobby expenses and safe deposit box fees.
Educator expenses have been added to the definition of what is not a miscellaneous itemized
deduction subject to the 2% of AGI floor. Section 62(a)(2)(D) was not repealed. As such, educators
are presumably still allowed the $300 above-the-line deduction. Any excess could be deductible
if the taxpayer itemizes. Clarification is needed in this area. The scope of who qualifies has also
expanded to include not just classroom teachers, but also interscholastic sports coaches and
administrators.
The types of deductible expenses have been broadened. Supplies and materials not related
to athletics but used in instructional activities are now explicitly included. Moreover, expenses
incurred outside the traditional classroom, such as those associated with extracurricular programs
or alternative instructional environments, can qualify as long as they are directly tied to educational
activities.
Effective date: Applicable tax years after Dec. 31, 2025.
Limitation on tax benefit of itemized deductions
Beginning in tax years after Dec. 31, 2025, a modified version of the Pease limitation will be
reinstated under new §68. This provision curtails the tax benefit of itemized deductions for high
income taxpayers by phasing out a portion of those deductions once income exceeds specified
thresholds.
Specifically, the reduction equals 2/37 of the lesser of:
• The taxpayer’s total itemized deductions, or
• The excess of the taxpayer’s AGI over the 37% tax bracket threshold
For the 2024 tax year (as a reference point), these thresholds are approximately $609,350 for single
filers and $731,200 for joint filers. As income rises above these amounts, affected taxpayers will
see a corresponding reduction in allowable itemized deductions, thereby increasing their overall
tax liability.
This change revives a mechanism last used before TCJA and is designed to limit the value of
deductions for those at the highest income levels.
NATP observation: High-income taxpayers will lose part of their itemized deductions as income
rises above these thresholds.
Effective date: Applies to tax years beginning after Dec. 31, 2025.
Takeaways
Trump Accounts (new)
A new class of long-term savings vehicles, referred to as Trump Accounts, has been established
to promote financial education, retirement readiness and asset accumulation for individuals under
age 18. These accounts are structured as modified traditional IRAs under §408(a), incorporating
unique eligibility, contribution and distribution rules tailored to minors.
A one-time $1,000 deposit will be made into accounts opened for qualifying children born after
Dec. 31, 2024, and before Jan. 1, 2029. Eligibility is restricted to individuals under age 18 (but
only those individuals born between the years mentioned above will receive a $1,000 deposit),
and contributions may only be made during the years before the beneficiary reaches that age.
Distributions are prohibited until the calendar year in which the beneficiary turns 18. Additionally,
contributions must be explicitly designated as Trump Account contributions at account creation.
Following the legislation’s enactment, a mandatory 12-month waiting period applies before
contributions may begin.
Annual contributions are capped at $5,000 per beneficiary, exclusive of rollovers, and are indexed
for inflation starting in 2028. Contributions may be made by parents, employers, charitable
organizations and governmental bodies, subject to the annual cap. Employers are permitted to
make non-taxable contributions on behalf of minor employees under the newly added §128.
Charitable and government entities may also make general funding contributions based on
specified eligibility criteria, such as birth year or geographic region.
Investment earnings within Trump Accounts grow tax-deferred. While the accounts mirror
traditional IRA treatment, additional IRS guidance is anticipated to clarify taxation upon
distribution. Permissible investments are limited to mutual funds and indexed ETFs, reinforcing the
program’s long-term, education-focused savings objectives.
To encourage early adoption, §6434 establishes a contribution pilot program that provides a $1,000
tax credit to initiate a Trump Account for eligible children born between Jan. 1, 2025, and Dec. 31,
2028. $410 million has been appropriated for this purpose, available through Sept. 30, 2034.
Example: Emma is born in 2026. Her parents elect to open a Trump Account.
• Her parents contribute $2,500/year
• Her employer contributes $2,500/year at age 16 and 17, working a summer job, as
employer contributions are authorized under §128 and excluded from her gross income
• The Treasury deposits a $1,000 pilot program credit into the account when she is born
• Total contributions over 17 years = ~$50,000
• Funds are invested in an S&P 500 index fund earning ~6%/year
• At 18, she begins using the Trump Account for qualifying purposes, such as education or a
f
irst-time home purchase
Impact: Emma begins adulthood with ~$70,000+ in retirement or general-purpose savings, tax
deferred, at no cost to her.
Example: Noah, born in 2027, has a Trump Account, but:
• His family contributes $7,000 in one year, exceeding the $5,000 cap
• They try to withdraw $2,000 for a laptop when Noah is 16
• Noah’s parents fail to report his SSN properly on the tax return
Outcome:
• Excess contribution triggers a 100% tax on the earnings from the excess amount
• Early withdrawal is disallowed and may be subject to additional penalties
• Omission of SSN leads to the IRS treating the return as incorrect, possibly rejecting the
deduction or credit entirely
Features of the Trump Account
• Non-taxable employer and charitable contributions to Trump Accounts
• No tax on earnings or qualified distributions
• Strict reporting and compliance rules for trustees
• Anti-fraud penalties for improper credit claims
§529 plans
§529 expansion of qualified expenses for K-12 education
Beyond expanding which expenses qualify, the legislation raises the cap on annual 529 plan
distributions for K-12 tuition. The limit increases from the previous $10,000 per student to $20,000
per student. This higher limit provides families with substantially more flexibility to fund private or
alternative schooling using their 529 savings.
Newly eligible K-12 expenses include:
• Tuition at public, private or religious schools
• Curriculum, books and online materials
• Tutoring or external educational classes, if the instructor is qualified and not related to the
student
• Standardized testing fees, such as AP exams or SAT/ACT
• Dual enrollment fees for college courses taken in high school
• Educational therapies for students with disabilities (e.g., speech, physical therapy)
Effective date: Taxable years after Dec. 1, 2025.
New coverage for postsecondary credentialing expenses
Expands §529 plan coverage to include expenses related to obtaining industry-recognized
postsecondary credentials, not just traditional college expenses.
Newly eligible postsecondary credential expenses:
• Tuition, fees and materials for approved training programs
• Testing fees for credential or license exams
• Continuing education is needed to maintain credentials
Qualifying programs must:
• Be on a state-approved workforce list (e.g., under the Workforce Innovation and
Opportunity Act)
• Be listed in the Veterans Benefits Administration’s WEAMS directory
• Prepare students for exams administered by credentialing organizations
• Be certified by the Secretary of the Treasury or the Labor Department as reputable
Qualifying credentials include:
• Industry-recognized certificates or licenses
• Apprenticeship completion certificates
• Occupational or professional licenses
• Credentials recognized under the Workforce Innovation and Opportunity Act
Effective date: Applies to §529 distributions made after the date of OBBB enactment.
Takeaway: These provisions significantly expand the flexibility and utility of 529 accounts,
allowing families to use funds not only for college, but also for K-12 education, vocational training,
credentialing and licensing programs.
Conclusion
While other topics are not included in this article, the OBBBA represents a significant shift in the individual tax landscape, with provisions that affect
nearly every taxpayer category, including low-income households, seniors, high-income earners
and self-employed individuals. Its permanent extensions of TCJA elements, new above-the-line
deductions, expanded savings incentives and changes to eligibility for existing credits merit close
attention.
Tax professionals should review these provisions carefully to understand their impact across a
range of client situations and begin planning well ahead of the law’s key effective dates, many of
which begin after Dec. 31, 2024.
Click Google Reviews
