What the New Reconciliation Bill Means for Your Financial Plan
A practical look at how recent legislation could affect your taxes, healthcare, and more.
Congress recently passed a sweeping legislative package known informally as the Reconciliation Bill or the “One Big Beautiful Bill.” While the full text covers a wide range of tax and policy updates, several key areas could have a real impact on household financial planning, especially starting in 2025 and beyond. While we are not tax professionals and do not give specific tax advice, it is important to consider how these new laws may impact your personal financial planning.
Tax Brackets, Deductions, and Income Planning
The bill locks in the current income tax brackets, including the 37 percent top marginal rate, and makes those rates permanent beyond 2025. This provides added clarity for long-term planning, particularly for income timing and tax projection strategies. Taxpayers now have more certainty in their future planning, especially when it comes to Roth conversions or timing income.
Beginning in 2025, the standard deduction will increase modestly and will be indexed for annual inflation. While exact amounts will vary, this change is intended to help more taxpayers reduce taxable income without needing to itemize.
For those who do itemize, a new provision limits the tax benefit (not the deduction itself) for high earners. Specifically, taxpayers in the 37 percent bracket will see the benefit of their itemized deductions capped at a maximum effective rate of 35 percent. This may be worth reviewing with a tax advisor, particularly if you have historically itemized large deductions.
SALT Deduction Relief
One major change involves the SALT (state and local tax) deduction. Starting in 2025, the cap increases from $10,000 dollars to $40,000 dollars for joint filers, with proportionate amounts for single and head-of-household filers. This increased cap phases down annually through 2029 based on income and reverts to the $10,000 dollar level in 2030. If you have previously lost out on deductions due to high property or state taxes, this provision may offer new opportunities for tax efficiency.
New Above-the-Line Deductions
The bill introduces two new above-the-line deductions, which means they can be claimed without itemizing:
- Tip and Overtime Deduction: Up to $25,000 dollars for joint filers ($12,500 dollars for single filers) in tip income and overtime pay for qualified occupations, phased out for higher earners. This applies from 2025 through 2028.
- Auto Loan Interest Deduction: Interest on loans for qualifying new U.S.-manufactured vehicles can be deducted, up to $10,000 dollars in total, from 2025 through 2029. Loans must be through a regulated financial institution.
These provisions may be especially beneficial for households with variable income, labor-intensive jobs, or plans to purchase a vehicle in the near term.
Expanded Child Tax Credit and New Child Savings Accounts
Beginning in 2025, the Child Tax Credit increases to $2,200 dollars per child, with inflation adjustments in future years. A portion remains refundable, offering continued support for low- to middle-income families.
The bill also creates a new form of savings vehicle known as Child Opportunity Savings Accounts. These accounts allow for up to $5,000 dollars in annual post-tax contributions per child and include a federal seed contribution of $1,000 dollars, subject to income limits. The accounts blend features of 529 and UTMA accounts and are intended to encourage long-term savings for children, though some rules are still being finalized.
Healthcare Planning and Medicaid Changes
A significant provision introduces monthly work or training verification requirements for Medicaid eligibility among adults aged 19 to 64. These federal programs are scheduled to begin in 2027, though states may choose to implement them sooner on a voluntary basis.
Parents with children under age 14 are generally exempt, though implementation details will vary by state. According to Congressional Budget Office estimates, this change could reduce Medicaid coverage for millions of Americans by 2034.
From a financial planning perspective, this underscores the importance of a reliable emergency fund. Ideally, individuals should maintain six to twelve months of expenses, especially those who rely on public healthcare or face job instability. It is also a good time to review private insurance options and consider Health Savings Accounts or marketplace plans.
Looking Ahead
With many of the bill’s changes scheduled to begin in 2025 and 2026, the next 12 to 18 months will be important for preparation. In addition to the provisions already discussed, here are a few more planning updates worth noting:
- Senior Standard Deduction: Taxpayers aged 65 and older will receive an additional 6,000 dollars on top of the standard deduction ($12,000 dollars for joint filers) from 2025 through 2028.
- Non-Itemizer Charitable Deduction: A permanent deduction of up to $1,000 dollars (or $2,000 dollars for joint filers) is now available for qualified charitable contributions, even for those taking the standard deduction. Contributions must be cash gifts to 501(c)(3) charities and are subject to income thresholds.
- Qualified Business Income Deduction: The 20 percent deduction for pass-through business income under Section 199A is now permanent, offering continued benefit to small business owners and self-employed individuals.
- Estate and Gift Tax Exemption: Beginning in 2026, the estate and gift tax exemption will increase to $15 million dollars per individual ($30 million dollars per married couple), indexed for inflation. This is not a doubling of the current level but represents a meaningful increase for high-net-worth planning.
Consider Taking the Time to:
- Review of your tax projection for 2025
- Revisit whether you will itemize or take the standard deduction
- Evaluate Roth conversion opportunities
- Explore new deductions and savings tools based on your family’s situation
While not every provision in the bill will affect all households, changes to deductions, credits, and healthcare access are likely to impact a wide range of families in some capacity.
We Are Here to Help
As always, we are staying on top of the legislation and its financial planning implications. If you would like to talk about how any of these changes may impact your personal financial planning, do not hesitate to reach out. In addition, discussions with your tax advisor are extremely important regarding these new tax laws. Planning ahead is the best way to ensure your strategy stays on course.
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Velekei Giles Financial Advisors is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.
This material is for informational purposes only and is not intended provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation, or needs of individual investors. This information is not intended for use as tax advice. Persons should consult with their own tax advisors for specific tax advice.