The “One Big Beautiful Bill” (OBBB) was signed into law on July 4, 2025. We’ve taken a targeted look at how the bill impacts high-earning W-2 employees, particularly those in tech with complex equity compensation structures.
Here’s what you need to know and how we’re thinking about this:
Tax Planning
Federal Tax Brackets Made Permanent
The income tax brackets enacted in 2017, which were previously set to sunset in 2026, are now permanent. This gives us much-needed clarity to project your future tax burden and structure Roth conversions, capital gain realizations, and charitable giving strategies accordingly.
Standard Deduction Increase
Beginning in 2026, the standard deduction increases to $15,750 for single filers and $31,500 for married couples, indexed to inflation. For clients who don’t itemize, this may creates incremental annual savings that compound over time.
No Changes to Roth Strategies
There are no limitations placed on Backdoor or Mega Backdoor Roth contributions. These remain highly effective ways for high earners to potentially create long-term tax-free retirement income. If you’re not already taking advantage, you might want to consider this strategy.
Alternative Minimum Tax (AMT) Rules Locked In
The bill codifies current AMT exemption levels and inflation indexing. While AMT affects fewer households than in the past, this is one less area of uncertainty in tax planning.
Family Benefits and Planning Tools
Dependent Care FSA Limit Increase
Beginning in 2026, the cap increases from $5,000 to $7,500 for married couples. This has been stagnant for decades and represents a meaningful planning opportunity for families with young children, especially when both spouses are employed. Careful coordination across two employers may allow full utilization of the benefit.
Child Tax Credit Expansion
The child tax credit increases modestly to $2,200 per child and is now inflation-adjusted. While phaseouts still apply at $200,000 (single) and $400,000 (married), this update makes the benefit more predictable over time.
New Federal Child Savings Account (“Trump Account”)
Children born between January 1, 2025, and January 1, 2029, are eligible for a one-time $1,000 government-funded deposit into a new tax-advantaged account. Parents can contribute up to $5,000 annually, and the account converts into an IRA once the child turns 18. Distributions are taxable to the child. We’re still evaluating the long-term utility of these accounts, but the initial structure favors those receiving employer-funded contributions.
Deductions, Credits, and Savings Enhancements
State and Local Tax (SALT) Deduction Expansion (with Phaseout)
The deduction cap increases from $10,000 to $40,000 through 2028, but begins phasing out at $500,000 AGI and is fully eliminated at $600,000. Notably, this cliff applies equally to single and married filers, which could reintroduce the marriage penalty for dual-income households.
Above-the-Line Charitable Deduction (Standard Deduction Filers)
Starting in 2026, taxpayers who take the standard deduction will be eligible to deduct up to $2,000 (married) in charitable contributions. There are AGI floors and caps that will require further analysis, but this provision creates a new incentive for everyday giving.
529 Plan Expansion
Qualified 529 expenses have been broadened to include up to $20,000 per year (up from $10,000) in pre-college education costs. For families in states offering 529 deductions, this adds flexibility to support early education without losing tax benefits.
Estate and Asset Planning
Estate and Gift Tax Exemption Made Permanent
The federal estate and gift tax exemption is now permanently set at $15 million per individual ($30 million per couple), indexed to inflation. This retains current exemption levels and can potentially provide greater predictability in long-term strategies involving trusts, family gifting, and wealth transfer.
Mortgage Interest Deduction Cap Unchanged
No change was made to the $750,000 cap on mortgage debt eligible for interest deduction. This provision had been expected to increase to $1.1 million but was ultimately left untouched.
What We’re Watching
While many of the provisions in OBBB are now law, several others, particularly those related to Medicare changes and health insurance under the ACA, remain in early stages of implementation. We’re also closely monitoring:
- Expanded HSA eligibility tied to Bronze and Catastrophic plans
- New rules around direct primary care and telehealth arrangements
- Ongoing debate over tax treatment of certain real estate strategies
How TPWA Is Responding
For our clients, this legislation represents both clarity and complexity. We’re already integrating these updates into our financial modeling and revisiting strategies like:
- Roth conversion and back door Roth contributions
- Use of 529s and new child savings accounts
- Wealth transfer planning in light of permanent exemption levels
As always, if you’d like to schedule a check-in to discuss how these updates apply to your plan, we’re here.
