Economists see the tax cuts in Trump’s One Big Beautiful Bill as one of the main drivers of the US economy in 2026, for both individuals and businesses. Below are some details on what to expect.
Tax cuts for individuals
A series of changes to individual tax rates and deductions could increase households’ available funds in early 2026, through a combination of larger refunds during filing season and an increase in net income as paycheck withholding levels are readjusted to reflect these changes.
The law makes permanent the lower individual and business tax rates from Trump’s 2017 Tax Cuts and Jobs Act, which were set to expire at the end of the year. It also extends that law’s standard deduction, expands and extends the alternative minimum tax exemption, and increases the estate tax exemption from $14 million to $15 million.
Exempts up to $25,000 in tip income from taxes through 2029. This tax benefit phases out for people earning more than $150,000 and does not apply to all tips. For example, automatic service charges applied to large groups at restaurants are excluded, as are tips received for “pornographic activity.”
It exempts up to $12,500 in overtime pay from taxes through 2029. As with tips, this deduction phases out for those earning more than $150,000.
Creates a new deduction of up to $6,000 for people over 65 until 2029.
Creates a tax benefit for payments of up to $10,000 in auto loan interest through 2029. This only applies to personal vehicles assembled in the US.
Expands the state and local tax (SALT) payment deduction from $10,000 to $40,000 through 2029. This tends to benefit wealthy homeowners in high-tax states, such as New York and New Jersey.
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Tax discounts for companies
The business tax changes are substantially aimed at providing incentives for companies to invest in their own businesses, both through the extension of lower tax rates and greater deductions for capital expenditures and investment in research and development.
Makes permanent the lower corporate tax rates in the 2017 law, which were set to expire.
Allows a full deduction for the purchase of certain equipment, which would allow businesses to immediately deduct the full cost of the equipment from their taxable income. This tax benefit began to phase out in 2023 and was expected to expire completely in 2027.
Allows full deduction for research and development (R&D) costs in the US Small businesses will also be able to retroactively deduct R&D expenses incurred since 2022. Independent tax experts say R&D and equipment deductions are among the most effective tax cuts to boost economic growth.
Relaxes limits on interest deductions. The 2017 tax law allowed the deduction of net interest costs up to 30% of earnings before interest, taxes, depreciation and amortization (EBITDA), but this was limited to only applying to EBIT from 2022. This deduction is now expanded to also include amortization costs.
Extends and increases a tax benefit for “pass-through” business owners. This would allow a broad category of businesses including freelancers, family restaurants, law firms, medical offices, hedge funds and private equity firms to deduct up to 20% of their income, reducing their effective tax rate. Independent experts are divided on the effectiveness of this tax cut, with the nonpartisan Tax Policy Center noting that there is little evidence that it will boost economic growth.
With information from Reuters
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