New Tax Breaks for Parents: What the One Big Beautiful Act Means for Your Family | E48
Are rising prices stressing your family budget? You're not alone — but there's some good news on the tax front. In this solo episode, Deb Meyer breaks down the most family-friendly tax updates from the One Big Beautiful Act (HR1) and how they could impact your wallet starting in 2025.
This episode is a must-listen for parents looking to maximize tax savings, understand new credits, and unlock new opportunities for education savings, childcare, and even family car purchases.
Deb spotlights five major tax updates that could create real opportunities for families:
(8:55) A bigger child tax credit for families with kids under 18
(10:57) Higher pre-tax limits for childcare costs through dependent care FSAs
(11:49) New 529 plan rules that give families more flexibility for K–12 and special needs expenses
(13:52) A brand-new tax-free savings account for children, including a government-funded jumpstart
(15:09) More refundable adoption credits for families expanding through adoption
Plus, she shares key distinctions between credits and deductions (and why that matters), and what income thresholds to watch to make sure your family qualifies.
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Full transcript
Deb Meyer (00:02.99)
Are you ever frustrated that things seem to be getting more expensive day after day? Yeah, me too. I'm here today to chat about taxes because that's one area that's not getting quite as costly. If you recall, in July of this year, we had the One Big Beautiful Bill Act (OBBBA) signed into law and it's formally known as HR1.
It has several different provisions. I am not going to be able to highlight each and every one of them today, but I will talk about what's important to you as a parent and an individual. We won't be going into the business specific provisions in this episode, but we will be sharing a lot of the impactful ones for you as a family.
First off, I'm going to start with some of the broader provisions, and then the second half of the episode, I'll go more into the specific provisions if you're a parent of at least one child under the age of 18 who's living at home. So with the Tax Cuts and Job Act of 2017, the idea was a lot of things needed to be sunsetting this year. And now with the passage of the One Big Beautiful Bill Act that has shifted, whereby a lot of these provisions from that 2017 legislation are now made permanent. So one of the things that's made permanent are the tax rates. Those are a good opportunity, especially if you're in a lower income year and you want to consider like a Roth conversion, you could be doing it at this lower income tax rate that's now made permanent.
If you're maybe an early retiree and you're kind of bridging the gap between
now and when you'll start taking social security or collecting a pension. Those are typically some really great years to be considering Roth conversions. But even if you're younger than that and not ready for retirement, just in a lower income transition year, always be considering those Roth conversions if you have the after-tax dollars to pay those additional bills. One other thing that was made permanent is the standard deduction that's higher.
Deb Meyer (02:25.678)
So is the new standard deduction for married couples filing jointly and 15,750 is for single persons. Now, as we're talking about taxes, I'm gonna get into some minutiae here being a CPA, but I'm hopefully gonna make it engaging for you and really just bring the ones that are gonna be most impactful to your family. So.
If you itemize deductions, if you fill out schedule A of your federal form 1040, then one thing that's important to note is the state and local tax cap. It used to be $10,000 under that 2017 Tax Cuts and Job Act. Now it's $40,000. So there used to be some limitations for a lot of people that might be in high-income tax states or states with higher real estate taxes.
they were very limited in what they could deduct on schedule A. Now with the cap being up to the 40,000, they might not be as limited. So when you look at the schedule A in that tax specific section, you're looking at state income tax and real estate tax and personal property tax collectively. And it used to be if those three things together exceeded 10,000, the most you could deduct was 10,000.
Now with this enhanced deduction, you could have up to 40,000 be deductible and it might push you from having taken the standard deduction the last couple of years and now you might have the opportunity to itemize deductions.
Now, while we're on the topic of Schedule A and itemizing deductions, let's talk about charitable giving. And there's some unfortunate news now that there's a floor, it's a 0.5 % floor on those charitable contributions if you're an itemizer. But there's also on the flip side some positive news. If you're not an itemizer and you want to take charitable contribution deduction, you could now take up to $1,000 as a married person or $2,000 as a, I'm sorry, $1,000 as a single person or $2,000 as a married couple filing jointly.
And for charitable contributions, for those who are itemizing, it's important to think about bunching the contributions now more than ever. So if you have one year where you're making substantial charitable contributions, great, you can take full advantage of that if you itemize that year. And then maybe the second year, just take the standard deduction, don't make as many charitable contributions.
That sounds great in theory, but in practice it can be difficult if you have certain charities that you want to continue monthly giving or quarterly giving, whatever your cadence is. But maybe talk to the organization or the development officer if it's a big enough recurring gift and say, hey, I'd rather have it applied now in this year rather than waiting for a future tax year. And they might be more than happy to do that.
there's no guarantee that they may still send you info and say, hey, when is that next contribution coming? But as long as you can ignore those notices, you could potentially stack those contributions. Or if you wanted to get really into it with the timing of the deductions, you could explore a donor-advised fund, again, if you're making some substantial charitable contributions and usually doing so with appreciated stock or mutual funding.
decisions. Okay. Let's talk also about some broad tax provisions on tips and overtime. So now there is no tax on tips up to $25,000 a year. And there's also no tax on overtime up to $12,500 if you're single or $25,000 for a married couple filing jointly. So that
Deb Meyer (07:11.758)
really helps a lot of people in industries like hospitality, restaurants that are typically compensated on tips. That's a very nice exclusion and win for them. But for those who are hourly workers in other industries, the overtime might come into play for you. It's important to just be cognizant that there will be a new tax form and you can exclude up to that 12,500 as a single person.
if you do have overtime pay. For most salaried workers that are in white collar positions, they're not gonna necessarily have overtime pay. So it might not be a provision as applicable to you, but just wanted to make you aware. All right. One other provision I wanna highlight is car loan interest. So if your modified adjusted gross income as a married couple is under $200,000 or 100,000 if you're single,
you might be able to take a vehicle interest deduction. It's for personal use cars, so not business cars, but personal use cars with final assembly in the US. Those that are purchased January 1st of 2025 or after. And like I said, up to $10,000 interest deduction for those purchases. So this is...
probably a byproduct of trying to keep things back in the US and counting on that US final assembly. There are some other special provisions along with that rule, so it's important to research it fully before you go and make that car purchase and do the financing. All right, and one other provision that might impact you or maybe a loved one would be the enhanced senior deduction.
So some people equate that with social security. It's not actually tied to social security. It's tied to your age. If you're 65 or older, you could be taking up to an additional $6,000 deduction. And that's a temporary deduction starting this year in 2025, extending through 2028. And your deduction potentially would phase out if you have more than $75,000 of adjusted gross income as a single person.
Deb Meyer (09:34.602)
or 150,000 as a married couple filing jointly. Now that phase out doesn't mean the deduction completely goes away if you're close to those income thresholds, but if you are far above that, usually you're not gonna get that extra benefit. All right, before we hop into parent specific provisions, I wanna take a quick break and encourage you to leave a rating or review.
It really does mean the world to me, knowing that you're enjoying the podcast and getting value from it. I try to create as much education as possible, both in the solo formats, but also in the interviews and the speakers that I'm bringing. So if you want others to find the show and continue on in this great course, please, please leave a rating review. It does mean a lot from a discoverability standpoint. Okay.
Let's move on to parent specific provisions. So we have the child tax credit and that's applicable if you have a child at home under age 18. One thing I want to state before we go into the specifics of this particular provision is credits versus deductions. So credits are going to be a direct reduction of your tax liability. Let's say your tax liability is $10,000 and you have a $2,000 tax credit.
that means you're only gonna pay $8,000 in tax after the credit. If you had 10,000 of income and a $2,000 deduction, that means you have 8,000 of income and that 8,000 of income still is subject to whatever tax rates. So it's a different equation because it's not affecting your tax liability as a deduction, it's affecting your taxable income as a deduction, okay?
So with this child tax credit, this is the bang for your buck. This is that dollar for dollar reduction of your tax liability. And there's a non-refundable credit up to $2,200 per child. That begins this year and will be inflation adjusted in subsequent years. And for those of you who have other dependents that live at home that you're providing that financial support,
Deb Meyer (11:53.166)
but they don't qualify as a child. Maybe it's an elderly parent living at home and relying on your support. It's $500 per dependent who is not a qualifying child as that non-refundable credit. Now there is a portion that's refundable, but most people, if you have any kind of tax liability, you're gonna more than cover and have that non-refundable credit applied.
The income phase-outs are high. So it's $400,000 for a married couple filing jointly or $200,000 for a single person. So anytime you're thinking about taking those credits, usually they're disproportionately favoring those with lower income. This particular credit is really helping people across the income spectrum. All right, let's move on to dependent care assistance.
Deb Meyer (12:51.086)
With dependent care assistance programs, these are usually offered by your employer. If you're especially at a larger employer, their dependent care accounts and the limitation has been $5,000 a year for a very long time. Now, because of this new legislation, it's moving up to $7,500 per year. And that's really for direct childcare expenses. So think daycare costs or day camps if you and your spouse are both working outside the home.
Whatever the situation is where you guys are needing these extra dollars, you can take them as an employer deduction on a pre-tax basis. So you're not paying tax on those and then you're getting that fed directly to your child care provider. So that's a really great win because it's moved up from 5,000 to 7,500. And then as we talk about 529 plans,
I want to broaden your minds because there are some expansions with the 529 plans and what they cover. So traditionally people thought of 529 plans exclusively as college savings plans. A few years ago, they changed legislation to now expand it, especially in certain states to say K through 12 expenses. But it was usually more limited to tuition. So now there's even more expansion in the 529 plan space where
you can look at K through 12 expenses up to $20,000 per student per year starting next year in 2026. The limitation per student per year right now for those K through 12 expenses is just $10,000. So they're doubling the potential amount that you could use from your 529 plan. And then also they're broadening the scope beyond tuition. So it now includes fees, books.
Curriculum supplies, maybe you have a homeschooler and you're trying to buy curriculum online, you could use the 529 towards those costs. Any kind of educational therapies if your student has a disability and you're seeking outside services because of it, you could use the 529 for those expenses as well. And if you are an adult and you've already been through school, maybe you have special credential like I have the
Deb Meyer (15:14.99)
CPA or the CFP, you could use a 529 plan that's in your name for your benefit for post-secondary credentialing expenses. So any of those renewal costs to keep those certifications. 529 plans can also be used to repay student loans up to $10,000. That's another newer provision. And there's now permanent expanded benefits for ABLE account holders. So ABLE is very similar to 529 plans.
It's not the same though. It's typically meant for a person with a disability that, you know, might not be in a traditional schooling option and really wanting to make sure, there's benefits for those, those, persons. All right. Let's talk next about the MAGA or Trump accounts. those are tax free savings accounts for minors. And you can think of them like an IRA exclusively for those under the age of 18. So.
For children born between January 1st, 2025 and December 31st of 2028, there's a special $1,000 tax credit if you open and fund that Trump account. Well, you don't even have to fund it. Technically, they'll just put the $1,000 in, the Treasury will, if you have a newborn born January 1st of this year or later. Now, the max contribution you can make per account per year is $5,000.
And that contribution can be made all the way up until the child's age 18. After they turn 18, then they have the option of withdrawing from the account for education purposes or potentially purchasing a home, like a down payment on a home. If you want to kind of go outside of those typical reasons, you'd have to wait until age 30 of the child to take the withdrawals out of this specific type of account.
So really cool new legislation, whether you love the name or not and different on that, but these are brand new accounts and there's very specific provisions around them in the One Big Beautiful Bill Act. All right, let's wrap up with the adoption credit. There's a section 23 adoption credit and now up to $5,000 of that credit is refundable. So the difference between refundable and non-refundable tax credits, it really relates to your underlying tax liability. So let's just say your tax liability was only $3,000 and you have this adoption that's up to $5,000. You could be getting the refundable portion kind of above and beyond the tax liability. If it's a non-refundable credit, you really have no option to take additional deductions. So let's just say...
It was a non-refundable credit of 5,000 and you had 3,000 of tax liability. You can't take more than the 3,000 of tax liability that you have. So that's a little nuance between refundable and non-refundable. And with the adoption credit, there is an annual inflation increase. So it's up to 5,000 this year. Lastly, there's a child and dependent care credit that looks at the qualifying
expenses for child care or day camps if both of you are working outside of the home, you and your spouse, or if you're a single income household, you're in a traditional paid role. So it's important to think about income thresholds for that. That varies significantly from the child tax credit that we discussed at the beginning of this section. And this is going to relate more to the percentage of expenses based on your income.
If you're a married couple filing jointly with 150,000 of income or less, you might be eligible to take closer to 20 % of those eligible expenses and use that as an additional credit on your taxes on form 2441. Or if you're single, it's the $75,000 threshold. Now, if you're at much lower income, let's say 15,000 of income, you potentially get 50 % of qualifying expenses now as that additional tax credit. So the lower the income, the higher the potential eligible expense percentage. Again, I couldn't cover every single provision, but if you're ever interested in tax planning and working in an ongoing capacity to mitigate taxes, I’m happy to be a resource.
Just go onto the website and schedule an initial meeting. And I will be linking to a couple of articles in the show notes that I was using to compile this summary for you. So those are great resources if you feel like you're drinking from a fire hose, listening to all the different dollar amounts and qualifications.
This is a nice representation in written format that you could refer back to. Okay, I hope this was helpful. Thanks!