On July 4, 2025, President Trump signed into law one of the most consequential tax and spending packages in recent years, officially known as the American Prosperity and Security Act, but more commonly called “One Big Beautiful Bill.” Passed by the narrowest of margins in the Senate, this bill delivers sweeping changes to the tax code, federal spending priorities, and long-term fiscal policy.
The legislation marks a turning point in American economic strategy, extending the 2017 Trump tax cuts permanently, rolling back climate-focused tax incentives, introducing a new tax break for seniors, and directing billions toward defense, veterans, and rural initiatives.
Whether you’re a business owner, employee, retiree, or investor, understanding what’s inside this legislation is essential to making smart financial decisions going forward.
Key Tax Provisions You Should Know
The core of the legislation revolves around tax reform and economic stimulus. Here’s a breakdown of the most significant changes:
Permanent Extension of 2017 Trump Tax Cuts
Originally passed as temporary measures, the 2017 tax cuts are now permanently enshrined in federal law. These include:
- Corporate tax rate fixed at 21%: Businesses will continue to benefit from a globally competitive corporate tax rate, to encourage domestic investment and job creation.
- Elimination of federal tax on tips and overtime pay: For millions of hourly workers, particularly in the service, hospitality, and retail sectors, tips and overtime income will no longer be subject to federal income tax. This is expected to boost take-home pay and potentially encourage more flexible work hours.
New Tax Break for Seniors
One of the more headline-grabbing provisions is a temporary senior tax credit:
- Individuals age 65 and older can claim up to $6,000 per filer in tax relief or $12,000 for couples.
- This credit is available through 2028 and is designed to alleviate the rising cost of living and healthcare expenses for retirees.
Repeal of Clean Energy Tax Credits
In a significant shift from the previous administration’s climate policies, this bill rolls back tax credits and incentives for:
- Electric vehicles (EVs)
- Residential solar panels
- Wind energy infrastructure
The repeal is part of a broader effort to prioritize traditional energy independence and reduce federal spending on environmental initiatives.
Federal Spending Increases
In addition to tax relief, the bill ramps up spending in key federal areas, signaling a reorientation of national priorities:
- Military and border security: Funding has increased substantially for defense modernization, cybersecurity, and border enforcement initiatives.
- Veterans’ programs and rural development: Targeted funding will support housing, healthcare, and education access in underserved and rural areas, as well as expand resources for U.S. military veterans.
Supporters view these investments as critical, but they come with a substantial price tag.
What’s the Cost?
According to independent estimates, the bill is expected to add between $3.3 and $3.4 trillion to the national debt over the next decade. This sharp increase in projected deficits stems largely from:
- Making tax cuts permanent
- Eliminating revenue-generating measures
- Expanding defense and rural spending
Critics argue that without corresponding spending cuts or new revenue sources, this trajectory is fiscally unsustainable.
How Did It Pass?
The political path to passage was razor-thin:
- In the Senate, the bill passed 51–50, with Vice President J.D. Vance casting the tie-breaking vote.
- The House of Representatives approved the measure swiftly on July 3.
- President Trump signed it into law on Independence Day, July 4, touting it as a promise kept from his 2024 re-election campaign.
This marks one of the most ideologically polarizing legislative victories of the current administration.
Supporters vs. Critics: A Divided Nation
Criticism and Opposition
- Elon Musk called the bill “fiscal suicide,” pointing to its long-term impact on deficits.
- Many Democrats and moderate conservatives have voiced concerns over:
- The disproportionate benefit to wealthy individuals and corporations
- Cuts to Medicaid, healthcare subsidies, and climate programs
- The abandonment of clean energy goals established in the Inflation Reduction Act
Support and Praise
- Business associations have applauded the legislation, stating that it provides tax certainty, and encourages business growth and job creation
- Small business owners are especially supportive of the simplified tax treatment for tips, bonuses, and overtime pay.
- Trump supporters view the bill as a strong follow-through on campaign promises centered on national security, energy independence, and economic freedom.
Federal Tax on Tips and Overtime Pay
For millions of hourly workers, especially in service, hospitality, and retail, the most immediate benefit of One Big Beautiful Bill is the elimination of federal income tax on tips and overtime pay. This move should boost take-home pay and may encourage more workers to take on additional hours or shifts.
But it’s important to understand the scope and limits of this new exemption:
What’s covered: The exemption applies only to federal income tax. Workers will still pay federal payroll taxes (Social Security and Medicare), as well as any state and local taxes that apply.
1. Limits on deductions:
Tips: Workers can deduct up to $25,000 per year in tip income, whether received in cash, by card, or through tip pooling.
Overtime: Eligible employees can deduct up to $12,500 per year (or **$25,000 for joint filers) on overtime compensation. However, only the “overtime premium”, typically the extra 50% above your regular rate, is deductible.
2. Eligibility rules:
Tip deduction: Available to workers in traditionally tipped industries, like food service and beauty. The IRS and Treasury will define a full list of qualifying occupations.
Overtime deduction: This applies to workers eligible under the Fair Labor Standards Act (FLSA), generally hourly employees working more than 40 hours per week.
3. Income phaseouts:
Deductions begin to phase out at incomes over $150,000 for individuals and $300,000 for joint filers. For every $1,000 earned above the threshold, the deduction is reduced by $100.
4. Already tax-exempt?
Workers earning below the standard deduction of $15,000 for single filers or $30,000 for joint, already owe no federal income tax, so this provision may not significantly impact their liability.
While the headlines may sound like “no taxes on tips or overtime,” the reality is more nuanced. Strategic tax planning can help workers in eligible roles make the most of these new rules.
How Scout Tax Can Help You Navigate These Changes
At Scout Tax, we understand that tax law changes, especially ones of this magnitude, can create confusion and uncertainty. That’s why we’re here to help you stay ahead of the curve.
Our expert tax advisors are ready to assist with:
- Personal tax planning: Understand how the elimination of tax on tips and overtime might affect your paychecks and withholding strategy.
- Senior tax credits: If you or a loved one is eligible for the new senior credit, we’ll ensure you claim the full benefit while it lasts.
- Small business guidance: Get tailored advice on how to leverage the permanent corporate tax rate and simplify compliance under the new rules.
- Clean energy decisions: If you’ve been considering solar, EVs, or energy upgrades, we’ll help assess the remaining benefits and timing.
Don’t Wait Until Tax Season to Adapt. Prepare Now.
Major tax policy changes like this require proactive planning, not just a reaction in April.
Let us help you maximize your savings, minimize your liabilities, and stay compliant in an evolving tax environment.
Visit Scout Tax’s website or call us to get started. Your future self will thank you.
