The budget bill of 2025 — labeled the One Big Beautiful Bill — is now law. Everyone has opinions about its controversial provisions. But this column is meant to consider its likely impact on your financial planning for life, now and in retirement.
For starters, the bill leaves in place the tax cuts that were due to expire. And it raises the standard deduction slightly for 2025 — from $15,000 for single filers ($30,000 married filing jointly) to $15,750 single ($31,500 married filing jointly).
It also increases the deduction for state and local taxes from $10,000 to $40,000 limit for 2025. That deduction rises by 1% through 2029, before it reverts to $10,000 in 2030. The higher deduction benefits those who live in high-tax states or pay property taxes on multiple homes.
The economic argument in favor of these provisions is that a failure to extend the existing tax cuts would act like a tax increase, slowing the economy and job growth.
People are also reading…
Social Security: A “bonus†deduction for seniors
A $6,000 tax deduction is available to taxpayers age 65 and older with a modified gross adjusted income (MAGI) of up to $75,000 for an individual filer and $150,000 for a couple filing jointly. Each spouse can take the deduction, for a total of $12,000, if both are 65 or older. The deduction is reduced for higher earners, phasing out completely at incomes of $175,000 for a single filer and $250,000 for a couple.
While this provision has been billed as “cutting taxes on Social Security,†you get this deduction if you qualify based on age and income — whether or not you are receiving Social Security.
As a practical matter, the deduction will offset the taxes, if any, paid on Social Security benefits by lower income recipients. Now, nearly 90% of Social Security recipients will no longer owe federal income tax on their benefits, up from 64% who currently pay no taxes on their benefits.
(For perspective, currently Social Security benefits are taxed on a sliding scale, with up to 85% of your benefit taxable if you are a single filer with total income over $34,000, or married with income over $44,000.)
Estate and gift tax exemption
Currently, the estate tax exemption is $13.99 million for single filers and $27.98 million for married couples filing jointly. The exemption will increase in 2026 to $15 million per individual and $30 million for married couples filing jointly.
Of course, you can leave an unlimited amount to your spouse. But on the death of the second spouse, the federal estate tax applies — along with any state inheritance or death taxes. As a practical matter, few estates pay these taxes, having created trusts and other gifting techniques to avoid paying federal death taxes.
Other tax benefits
There will be no income tax on tips up to $25,000 per year from 2025 through 2028. And if you receive paid overtime, there will be no income tax on up to $12,500 of overtime per taxpayer from 2025 through 2028. Note: Federal payroll taxes on tips and overtime will still be owed.
You will also be able to deduct up to $10,000 of annual interest on new auto loans from 2025 through 2028. And there will be a one-time $1,000 credit to a special child savings account per child born between 2025 through 2028.
Paying the bill
Now, how will the government pay for these benefits? That’s the $3.3 trillion question. One answer is through economic growth as a result of extending lower tax rates. Tariffs are expected to bring in money to fill some of the gap, assuming higher prices don’t slow the economy into recession.
Spending cuts of a huge magnitude are included in this bill — everything from SNAP food stamps to Medicaid benefits to subsidies for Obamacare health insurance policies.
The Congressional Budget Office says that more than 17 million people will lose healthcare coverage. For those wanting to buy health insurance through the Affordable Care Act, the bill increases verification requirements and would effectively end automatic re-enrollment.
Cuts in spending in so many programs from public broadcasting and the arts to medical research and food safety and the National Weather Service will all have consequences — some immediately, and some to be revealed down the road.
Planning for your future
Cuts In Medicaid spending and revenue sharing from the federal government mean many states will discontinue programs aimed at seniors — from home health care to nursing home reimbursement. This might lead you to reconsider the purchase of long-term care insurance if you can afford it.
Medicare escaped direct cuts, but indirect effects could occur if Medicaid cuts impact dual-eligible seniors or hospital funding. Or if reimbursements for Advantage programs are cut. Solution: Stick with original Medicare and a supplement if you can afford it.
If you benefit from that tax cut on overtime or tips, please consider using the “found money†to pay down debt, which is costing you 22% or more in interest each year.
Like it or not, the bill is now law. You’ll get another vote in a little over a year. But in the meantime, you need to understand the law's provisions and how they impact your budget and planning. That’s The Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.†Terry responds to questions on her blog at .)
©2025 Terry Savage. Distributed by Tribune Content Agency, LLC.
