How the OBBBA Tax Law Affects Tech Professionals

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), an 870-page piece of legislation that delivers sweeping changes to the tax code. While the bill is massive, you don’t need to wade through every section. I’ve done the heavy lifting and pulled out the updates that are most relevant to tech professionals, especially those with equity comp, high incomes, or significant itemized deductions.

From tax brackets and credits to SALT deductions and Qualified Small Business Stock (QSBS), this article covers what matters most, so you can make smart financial decisions moving forward.

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Permanent Extension and Enhancement of Reduced Tax Rates

The Tax Cuts and Jobs Act of 2017 (TCJA) reduced tax rates, which were about to expire after 2025 and revert back to the pre-2018 levels. However, the OBBBA permanently extends the reduced tax rates. Note, the dollar thresholds at which the brackets begin and end will be modified over time for inflation adjustments.

The long-term capital gains tax rates have also been permanently extended.

Permanent Extension and Enhancement of Increased Standard Deduction

The TCJA nearly doubled the standard deduction amount. As such, IRS data shows that approximately 90% of all tax filers in 2022 claimed the standard deduction. Prior to TCJA taking effect in 2018, only 30% claimed the standard deduction.

The OBBBA permanently extends the standard deduction amounts, which were set to revert back to pre-2018 levels. The passing of OBBBA also enhanced the amounts. Beginning in 2025, the standard deduction amounts are:

• Married Filing Jointly: $31,500 (up from $30,000)
• Single: $15,750 (up from $15,000)
• Head of Household: $23,625 (up from $22,500)

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State and Local Tax (SALT) Deductions

Because the TCJA caused most tax filers to fall under the standard deduction, the number of people claiming the itemized deduction on Schedule A not only decreased but they also may have been squeezed due to the State and Local Tax (SALT) cap of $10,000.

The primary categories within SALT are the state and local income taxes and property taxes. Under TCJA, the maximum combined amount that could be deducted was $10,000. This cap became a disadvantage for people living in high income tax states (like California, New York, and Illinois). Not only that, some states have high property taxes. The State of Texas has zero income tax but high property tax. If a family had a $15,000 property tax bill, even their deduction was capped at $10,000.

The OBBBA gives us mixed news for SALT. The good news is the SALT cap is raised from $10,000 to $40,000 starting in 2025. Notably, the $40,000 cap apples to those who are Single or Married Filing Jointly. This is attractive for both types of filers, but especially single people with high state income or property taxes. In case you are wondering, Married Filing Separately (MFS) has a $20,000 SALT cap.

The cap increases by 1% each year through 2029. Again, this is only available for those who itemize deductions.

The unfortunate news is the SALT cap reverts to $10,000 in 2030 ($5,000 MFS). Also, there is an inflation-adjusted phaseout starting at $500,000 (Single and MFJ) up to $600,000. In other words, when Modified Adjusted Gross Income (MAGI) exceeds $500,000 the SALT cap of $40,000 starts to reduce by 30% of excess income. When MAGI exceeds $600,000, the SALT limitation is $10,000. Basically, when your MAGI goes above $500,000 the SALT limit is linearly reduced to a floor of $10,000 at $600,000 of MAGI. That’s clear as mud, right?

The bottom line is that people who itemize deductions may now be able to deduct up to $40,000, whereas it was $10,000 since 2018. If you have RSUs and other income that exceeds $500,000, tax planning will be important to take into consideration to optimize your tax situation. Roth conversions will also need careful planning for high income earners. If you are not paying attention, this phase out could negatively impact you.

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Limitation on Itemized Deductions

Nobody is talking about this amendment, but it caught my attention. If you are a high earner, you should be aware that starting in 2026, itemized deductions shall be reduced by 2/37 of the lesser of itemized deductions or income in the 37% tax bracket. 

So, if you are in the 37% bracket, the benefit of your itemized deductions is capped at 35%, the next lower bracket.

‍(Conner Kelderman, CPA, of Track provided clarification on this topic.)

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Permanent Extension of Estate and Gift Tax Exemption

The estate and gift tax lifetime exemption amount of $13,990,000 per person (2025) was set to expire at the end of this year and revert back to pre-2018 levels. But the OBBBA permanently extended and enhanced the exemption to $15,000,000 per person ($30,000,000 for MFJ) starting in 2026. This amount will be adjusted for inflation annually. 

Had the exemption reverted at the end of 2025, the amount would have been around $5,000,000 per person. This could have subjected many people and families to estate and gift tax implications. With the OBBBA extension and enhancement, those impacted in the future will be much fewer.

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Child Tax Credit

The child tax credit is increased from $2,000 to $2,200 starting in 2026. This amount will be adjusted for inflation going forward. The credit amount is subject to income phase outs.

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Dependent Care FSA Increase

The Dependent Care FSA limit increases from $5,000 to $7,500 starting in 2026. This was a welcome update. 

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Itemized Deduction Floor On Charitable Contributions

The OBBBA amended the handling of itemized deductions for charitable purposes on Schedule A of Form 1040. Beginning in 2026, deductions of charitable contributions will be allowed only to the extent they exceed 0.5% of your contribution base, which is your Adjusted Gross Income (AGI). 

For example, let’s assume your AGI for 2026 will be $400,000, and you make a qualified charitable donation of $10,000. The floor is calculated as 0.5% of $400,000, which equals $2,000. Therefore, only $8,000 ($10,000 - $2,000) will be eligible for an itemized deduction.

There are also carryforward rules applied if the 0.5% floor is met.

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Charitable Deduction for People Electing the Standard Deduction

This was a nice addition for non-itemizers. Prior to OBBBA, if you made a charitable donation while claiming the standard deduction, you received zero tax benefit. The only way to unlock the added tax benefit was to elect itemized deductions. As outlined above, the standard deduction is high, making it difficult to itemize.

Starting in 2026, OBBBA allows even those who claim the standard deduction to deduct $1,000 (Single) and $2,000 (MFJ) for charitable contributions. This is a permanent, above the line deduction. There is no income phase out limit or inflation adjustment.

This may be a tax opportunity for tech pros who elect the standard deduction, but who would also like to benefit from donating some of their RSUs. This comes into play when the individual wants to reduce their concentrated stock position that has unrealized capital gains. OBBBA now unlocks a tax benefit that was previously not accessible.

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Alternative Minimum Tax (AMT) Exemption

The Alternative Minimum Tax (AMT), filed on Form 6251, is a parallel tax system to ensure that people pay a minimum amount of tax. It comes into play for people who have income from these types of sources: Incentive stock options (ISOs), Qualified small business stock, investment interest expense, and passive activities. 

The OBBBA permanently extends the AMT exemption, which is like a standard deduction but for AMT purposes. A slight drawback is that the income phase out will revert back to pre-2018 levels of $500,000 for Single filers and $1,000,000 for MFJ. This amendment will commence in 2026, and it will be indexed for inflation.

The main takeaway for tech professionals who have ISOs is that it may be more beneficial to consider exercising options in 2025 rather than 2026. But everyone’s situation is unique.

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Qualified Small Business Stock (QSBS)

Tech founders, early employees, and investors will appreciate the OBBBA’s expansion of the Qualified Small Business Sock (QSBS) benefits. A Qualified small business is defined as a domestic corporation that is a C-corporation with aggregate gross assets not exceeding $75 million at time of issuance. OBBBA raised this gross asset limit up from $50 million.

Capital gains are excluded from income at the following thresholds:

• 50% for stock held 3 years
• 75% for stock held 4 years
• 100% for stock held 5+ years

Under the previous law, you could exclude up to $10 million from federal income tax. The $10 million cap remains for stock acquired on or before the law’s enactment date. OBBBA expands the cap to $15 million (or 10x basis, whichever is greater) for stock acquired after the enactment date. 

Starting in 2027, the $15 million amount will be indexed to inflation.

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Permanent Extension of Residential Mortgage Interest Deduction

Mortgage interest is considered an itemized deduction. The OBBBA permanently extends the limit on acquisition debt of $750,000 ($375,000 for Married Filing Separately). Stated differently, interest expense on a qualified residence is deductible on mortgage loans up to $750,000. A qualified residence includes the principal residence and a second home. This permanent extension begins in 2026.

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Auto Loan Interest Deduction

The OBBBA makes auto loan interest deductible for itemizers and non-itemizers. The temporary deduction limit is $10,000 for auto purchases made between 2025 and 2028. Autos that qualify include passenger cars, suvs minivans, pickup trucks, and motorcycles, all weighing less than 14,000 pounds, and with final assembly in the United States.

There is a 20% phase out rate starting at a MAGI level of $100,000 ($200,000 MFJ).

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Termination of Green New Deal Credits

OBBBA dealt a significant blow to several Green New Deal subsidies. I won’t list them all, but here are a few that may get the most attention.

The Clean Vehicle Credit will be terminated for purchases made after September 30, 2025. As of this writing, you still have a few months to take advantage of this credit.

The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit are terminated at the end of 2025.

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Expansion of 529 Accounts: Qualified Expenses and Limitation Amount

OBBBA expands the qualified education expenses for purposes of 529 accounts including tuition, curriculum materials, books, online education materials, and tutoring fees for attendance at elementary or secondary public, private, or religious schools.

Other notable qualified expenses include fees for nationally standardized achievement tests, and educational therapies for students with disabilities, including occupational, behavioral, physical, and speech-language therapies.

The expense limitation is increased from $10,000 to $20,000, effective in 2026.

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Trump Savings Accounts (For Individuals Under Age 18)

Do you remember when President George W. Bush proposed Lifetime Savings Accounts (LSAs) and Retirement Savings Accounts (RSAs) in 2003. They were met with fierce opposition, and many claimed that these accounts would be invested in the risky stock market. As a result, the LSAs and RSAs never saw the light of day.

Fast forward to 2025. Enter the Trump Accounts, which have a similar feel and structure to Bush’s proposed savings accounts. Here are some of the details.

• Trump Accounts are considered Individual Retirement Accounts but not Roth IRAs. 
• Eligible participants are children born between 2025 to 2028, before turning age 18.
• Only after-tax, non-deductible contributions will be allowed, and may start on July 4th, 2026. Qualified rollovers are not considered contributions.
• The contribution limit is $5,000 per calendar year, and a cost of living adjustment (COLA) will be applied to future years. The US Government will contribute $1,000 per calendar year to each account.
• Eligible investments are any mutual fund or ETF that tracks a qualified index (such as the S&P 500), does not use leverage, and has annual fees and expenses not exceeding 0.10%. 
• Distributions cannot begin until the child turns 18.

It is still uncertain how the Trump Accounts will be received and administered. Frankly, apart from the $1,000 government contribution, I’m not sure if these will be widely adopted. Time will tell.

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Summary

The OBBBA makes permanent several key provisions from the 2017 tax overhaul and introduces new strategies and new complexity for high earners in tech. Whether it’s understanding how the updated SALT deduction impacts your RSU-heavy income, or optimizing charitable giving under new rules, the changes may open up opportunities and pitfalls depending on your unique financial picture.

While this post covers the highlights, it’s not a substitute for personalized advice. If you have high income, you’re managing equity compensation, or you're simply unsure how these updates affect you, now is the time to talk to a financial planner. 

If you’re ready to simply have a conversation, we would welcome that opportunity. It’s complimentary! And if we’re not the right fit, we’ll tell you up front.

Book your Free Assessment today!

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Stu Sneen, CFA, CFP® | Founder & Financial Planner

Stu@twotenplanning.com

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FAQ

‍When does the One Big Beautiful Bill Act go into effect?

President Donald J. Trump signed the OBBBA on July 4, 2025. Some amendments begin in 2025, and others go into effect in 2026.

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How does the no tax on overtime work in the Big Beautiful Bill?

For 2025 to 2028, up to $12,500 ($25,000 MFJ) of overtime compensation is deductible for both itemizers and non-itemizers. The deduction begins to phase out at MAGI of $150,000 ($300,000 MFJ). It appears the income will be subject to FICA Tax but not Federal Income Tax.

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Does the Big Beautiful Bill tax tips?

Starting in 2025 through 2028, OBBBA allows up to $25,000 of tips per person within a taxable year to be deducted. It is also subject to an income phase out at MAGI of $150,000 ($300,000 MFJ). Like the overtime treatment, this deduction is available to those who itemize or take the standard deduction.

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Is Social Security taxed in the Big Beautiful Bill?

Social Security taxation is not directly impacted by the OBBBA. However, there is a temporary additional $6,000 personal exemption available for qualifying individuals age 65+. Think of it as a bonus exemption. It’s temporary because the available period is 2025 to 2028. There is a phase out when MAGI exceeds $75,000 ($150,000 MFJ).

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What does the OBBBA mean for IRAs, Roth IRAs, and Backdoor Roth's?

There are no direct changes to individual retirement accounts.

What does the OBBBA mean for 401(k) plans and the Mega Backdoor Roth?

OBBBA does not directly address or change these retirement plan features.

What does the OBBBA mean for Health Savings Accounts (HSAs)?

There are no changes to HSAs in the OBBBA.

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References:

‍Congress.gov

Legal Information Institute

IRS.gov

Tax Foundation

fpPathfinder

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