Many different reforms were made as part of the OBBA introduced last year. Here we will explore some of these points, and what they can mean for taxpayers.
Trump accounts
What are trump accounts?
This is a type of investment account with a tax structure that resembles a traditional IRA. Contributions are deductible in the year made, and distributions are fully taxable when withdrawn.
Who is eligible for this?
Dependents who are US citizens and have a valid SSN. A government pilot program is available for children born after December 31, 2024 and before January 1, 2029. This program allows an election to be made using IRS form 4547. This allows for a government contribution of $1,000 to the account.
How to open an account?
This can be done either through IRS form 4547, or online at trumpaccounts.gov. The online option is not yet available and is expected to be rolled out in mid-2026. Starting May 2026, instructions will be issued to individuals who made the election, to enable authentication and to complete the account opening process.
When do contributions and distributions happen?
Contribution will be accepted starting July 4, 2026. Distributions are allowed after the dependent reaches 18.
State and Local Tax (SALT) Itemized Deduction
State and local taxes can be used as an itemized deduction to offset taxes due on a federal return. This bill sets a $40,000 SALT deduction cap for taxpayers who Adjusted Gross income are under a specific threshold. The threshold, set for 2025, will be gradually adjusted based on inflation, until 2029.
Qualified Overtime Compensation
- Fair Labor Standards Act (FLSA) requires, under federal law, that employees be compensated for overtime at a rate of 1½ their regular hourly rate. Only the additional ½ portion of that pay is qualifies for overtime compensation deduction
- This deduction is limited to $25,000 for taxpayers filing a joint return.
New Personal Automobile Loan Interest Deduction
This is a deduction that is limited to $10,000 of eligible interest. In addition, a number of conditions must be met.
- The vehicle must have had its final assembly completed in the United States.
- The loan must qualify as an eligible personal automobile loan.
- Only vehicles that are used for personal use qualify, not business or investment vehicles.
Tip Income Deduction
Eligible employees may deduct qualified tips that are voluntarily paid by customers. Qualified tips are those earned in the United States, and properly reported as wage income. This deduction generally does not apply to self-employed individuals, or non-U.S services, and is subject to income limits and additional IRS guidance.
Please note, it does not reduce payroll (FICA) tax.
