On July 4, President Trump signed the One, Big, Beautiful Bill Act into law. The Bill had been passed by the House on July 3 with a vote of 218 to 214, and by the Senate on July 1 with a 51-50 vote, with Vice President Vance breaking the tie.
The Act includes a wide variety of tax changes, including making permanent many tax provisions of the Tax Cuts and Jobs Act (TCJA) from President Trump’s first administration that were due to expire at the end of 2025, new provisions based on President Trump’s campaign promises, elimination or modification of most green energy provisions, and many other changes affecting businesses. In this Alert, we will focus on the changes affecting mobile populations (inside and outside of the United States) as well as for those who invest in or work in the US. Please note that we have made general comments and not included all specifics. For detailed information on how these changes will affect you, your company and/or your employees, please consult your tax advisor.
Many of the individual provisions of the TCJA are among those that were scheduled to expire at the end of 2025. These include:
The Act makes all of these provisions permanent, with some modifications. The standard deduction will be slightly higher and indexed for inflation each year starting in 2026. An interesting addition is that while the deduction for mortgage interest is limited, mortgage insurance premiums will be treated as qualified residence interest for deduction purposes.
While the Act permanently eliminates personal exemptions, it does include a $6,000 deduction for seniors age 65 and older between 2025 and 2028. This deduction will phase out for individuals whose income exceeds $75,000 for single filers and $150,000 for joint filers.
Of particular note to mobility professionals is the permanent deletion of the deduction for taxpayer paid moving expenses and exclusion for employer paid moving expenses. Please note that the deduction and exclusion will continue for active-duty Armed Forces members and members of the intelligence community.
One of the most discussed portions of the TCJA was the $10,000 cap on the deduction for state and local taxes. This is especially important to taxpayers living in high tax states such as New York, New Jersey and California. The Act nearly did not pass the vote in the House due to objections by representatives from those states.
The Act contains a temporary increase to the cap to $40,000 ($20,000 if married filing separately) for 2025, with a one percent increase in the cap each year through 2029. Thereafter, the cap will return to the previous $10,000. However, the cap is reduced by 30% of the excess of a taxpayer’s income above a threshold amount. That threshold is $500,000 ($250,000 if married filing separately) for 2025, with a one percent increase each year through 2029. However, the deduction will never be decreased to less than $10,000. See below for a summary:
|
SALT deduction cap – Summary | |||
|
Modified AGI (non-MFS) | Up to $500,000 | $500,001 – $599,999 | $600,000 and up |
| Maximum SALT Deduction | $40,000 | $40,000 less 30% of amount over $500k |
$10,000 |
Please also note that while there was discussion of ending the Pass Through Entity Tax deduction, that limitation was not included in the final Act.
In the past (prior to 2010), itemized deductions were subject to a phaseout at higher incomes (the “Pease” limitation). While the Pease limitation is gone, the Act includes a similar phaseout of the tax benefit of itemized deductions for taxpayers in the 37 percent income tax bracket starting in 2026.
For tax years beginning in 2026, a deduction of up to $1,000 ($2,000 in the case of a joint return) can be taken in calculating taxable income for charitable contributions made in cash during the tax year. This deduction is only available to taxpayers who do not itemize.
For taxpayers who itemize, a 0.5 percent floor on charitable deductions will apply.
With the inrease in the SALT deduction, some may fear a return to an AMT liability, however, for tax years beginning after 2025, the larger AMT exemption amounts and phase out thresholds for individuals are made permanent. The amount at which the exemption begins to phase out for married taxpayers filing jointly and surviving spouses is reset to $1,000,000 for tax years beginning in 2026 and adjusted annually for inflation in subsequent years. The phaseout thresholds for all other filing statuses are not impacted, and continue to be adjusted for inflation based on the 2018 amounts.
Additionally, the AMT exemption amount is reduced by 50 percent (compared to 25% under TCJA) of the amount by which alternative minimum taxable income exceeds the applicable phaseout threshold.
The TCJA had increased the amount of the child tax credit along with significantly increasing the income phaseout thresholds to $400,000 for joint filers and $200,000 for other filers. This allowed much higher child tax credits for a large number of taxpayers who had not previously been eligible to due to the income limits.
The Act permanently increases the basic credit to $2,200 with an annual inflation increase. The refundable portion of the child tax credit (“additional child tax credit”) is capped at $1,400. The Act requires the taxpayer claiming the credit and the applicable child to have Social Security numbers, and the taxpayer’s Social Security Number must be work eligible.
The lifetime exclusion amount is permanently increased to $15 million per US person, up from $13.99 million in 2025, and will be annually indexed for inflation. The scheduled 2026 sunset has been eliminated.
One of the big campaign promises by President Trump was no tax on tip income. While there is no exclusion of tax on tips, the Act now gives a deduction for qualified tip income. This is a temporary deduction, valid for tax year 2025-2028, and is in addition to a taxpayer’s standard or itemized deductions. The deduction is capped at $25,000, and the deduction begins to phase out when the taxpayer’s income exceeds $150,000 ($300,000 for joint filers).
Employers will have to adjust withholding for those receiving qualified tips. A Social Security number is required to claim the deduction.
More likely to apply to mobile populations than tip income, President Trump also promised exemption from tax on overtime pay. Under the Act, taxpayers will now be able to claim a deduction for the amount of qualified overtime pay. Like the deduction for tip income, taxpayers do not have to itemize deductions to claim the deduction, but are required to provide a Social Security number. The deduction is capped at $12,500 per taxpayer, and is subject to a phase out when the taxpayer’s income exceeds $150,000 ($300,000 for joint filers). Like the tip deduction, this deduction will end after tax year 2028. Employers will have to report the amount of overtime paid on Form W-2. There will be a transition rule in place for tax year 2025 for reporting purposes.
Employers with employees who earn overtime pay and are subject to an equalization policy should review their policy to ensure compliance with the applicable phaseout rules and confirm the appropriate treatment of such compensation. Employees who would be eligible for the deduction without the inclusion of allowances in their income may seek to be equalized on that large lost deduction.
The Act adds a deduction of up to $10,000 for interest paid on an automobile loan in 2025 through 2028 for a new car purchased after 2024. This deduction is subject to income limitations but is in addition to the standard or itemized deductions. Please note that this deduction only applies to loans for the purchase of personal passenger vehicles where the final assembly occurs in the United States.
The OBBB creates a federal savings program for children under 18 years of age. In addition, for children born between January 1, 2025, and December 31, 2028, the US Treasury will contribute $1,000 to each qualifying child’s account if an election is made. A qualifying child must be a US citizen with at least one US citizen parent. Private contributions of up to $5,000 per year are permitted including an exclusion from income for employer contributions to an employee’s or an employee’s dependents’ account of up to $2,500. Investment growth is taxable upon distribution, and withdrawals are not permitted before age 18. These accounts are not tax-free like Roth IRAs.
The Act also includes:
The following credits have been terminated:
A new 1% excise tax will apply to non-commercial international remittance transfers, regardless of the taxpayer’s residency or citizenship status. While many versions of this tax were included in the previous versions of this Act, the final version will affect very few of our mobile populations. Transfers made through US financial institutions subject to the Bank Secrecy Act (BSA) or funded via US issued debit/credit cards are exempt.
Please note that we had previously discussed the introduction of Section 899 which would increase the tax rates of citizens and companies located in jurisdictions that impose what the legislation defines as an “unfair foreign tax.” This provision is not in the final Act.
With the elimination of Section 899 and the changes to the remittance excise tax in the final version of the bill, some of the potentially challenging issues for mobility professionals have become less troublesome. However, there will be questions from US touching assignees with regard to how this affects their net income, especially with those eligible for the increased SALT deduction and for those with overtime pay in a tax equalized environment. Please ensure that you have read and understood how this will affect your population and your overall assignment costs.
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Julie Baron
Partner
David Austin
Partner
Mike Branca
Partner
For a deeper discussion about the mobility tax implications of the One, Big, Beautiful Bill, please refer to our webinar held on Friday, July 11. Access the recording here.
And be sure to join us for our next webinar on Friday, July 25 at 1:30pm EDT / 10:30am PDT. It will provide further clarification on many of the changes. Register here.
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