US tax law: The One Big Beautiful Bill Act (OBBBA) brings these changes

On May 22, 2025, the House of Representatives passed the budget bill on the tax agreement, also known as the "One Big Beautiful Bill Act" (OBBBA). The Senate introduced its own version on July 1, 2025, which contained various changes to the tax provisions of the House bill. On July 3, 2025, the House of Representatives approved the Senate version without further amendments, and President Trump signed the bill into law on July 4, 2025.

Both the House and Senate bills essentially make permanent the tax provisions of the Tax Cuts and Jobs Act (TCJA) - i.e., the provisions of the first major tax reform enacted during Donald Trump's first term. Both bills also include temporary tax breaks promised by the president, such as relief on tips, overtime pay and auto loan interest, and introduce a broad range of revenue-raising measures.

• The permanent introduction of the Section 199A deduction for income from partnerships (albeit at the current rate of 20% instead of the higher 23% in the Finance Act)
• The introduction of 100% immediate depreciation for property used in a trade or business
• The temporary increase in the $10,000 cap on the deduction for state and local taxes (SALT) to $40,000, with no significant changes in the treatment of partnership taxes

This article focuses on analyzing several key provisions of the final bill, particularly those with immediate and long-term effects on individuals, businesses and institutions.

A surprising deletion in the Senate version is the proposed new Section 899, which provided for a retaliatory tax mechanism against certain foreign countries. The budget bill would have allowed the US Treasury Department to classify countries with discriminatory or extraterritorial tax systems - such as digital services taxes affecting US multinational corporations - as "discriminatory jurisdictions." This classification would have resulted in an increase in the income tax rate of up to 20% on certain types of income such as "effectively connected income" (ECI), "fixed, determinable, annual or periodic" (FDAP) income and other categories.

These regulations could have had a significant impact on foreign investors and companies with a US connection. The measure was ultimately dropped following a G7 agreement to promote coordinated international tax reforms within the OECD.

The OBBBA neither amended nor repealed Section 891 of the Internal Revenue Code. This section allows the President to double the tax rates on certain U.S. source income paid to citizens and corporations of countries with discriminatory tax practices. These increased tax rates apply to income that is connected with a US business activity (including compensation for personal services in the US) and income from sources within the US that are not connected with a US business activity (such as dividends, interest, rents, royalties and certain capital gains). The increase may not exceed 80% of the taxpayer's income. If the discriminatory tax is abolished abroad, the President may repeal the doubled tax rates.

The USA has a progressive federal tax system with seven tax rates that apply depending on the level of income. The marginal tax rate increases as income increases. The Tax Cuts and Jobs Act (TCJA) retained the seven-tier structure, but temporarily adjusted the tax rates for the years 2018 to 2025. Prior to the TCJA, the rates were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. For the years 2018 to 2025, the rates range from 10% to 37% (10%, 12%, 22%, 24%, 32%, 35%, and 37%).

The tax rates for net capital gains and qualified dividends (0%, 15% and 20%) remain unchanged, but the income thresholds at which these taxes apply have been adjusted.

The Senate version adopts the House of Representatives' proposal to make the TCJA's individual tax rates and income limits permanent so that there is no threat of automatic tax increases from 2026.

A key aspect of the OBBBA is the permanentization of the increases in the standard deduction introduced by the TCJA and the complete elimination of personal exemptions (reduction to $0). The latter has a noticeable impact on US tax compliance costs, especially for short-term assignments and business travelers.

Prior to the TCJA, non-residents in the US could not claim a standard deduction, but could claim a personal exemption. If income was below the exemption amount, there was generally no tax filing requirement in the US. Today, due to the elimination of the personal exemption and lack of a standard deduction, a non-resident business traveler may be required to file a US tax return from the first dollar earned - although exceptions may still apply depending on de minimis thresholds. This will result in higher costs and a greater administrative burden for tax compliance in global mobility programs.

Prior to the TCJA, taxpayers could deduct certain taxes - such as state and local income, property and sales taxes - without a cap. The TCJA imposed a temporary aggregate limit of $10,000 ($5,000 if filing separately), which primarily affected taxpayers in high-tax states such as California and New York.

This limit was particularly controversial because it greatly reduced deductible expenses for residents of high-tax states, increasing the federal tax burden for higher earners.

The Senate version temporarily raises the SALT deduction limit to $40,000 ($20,000 if filing separately) for the years 2025 through 2029, with a gradual reduction for high-income households.

From the 2030 tax year, the original limit of $10,000 will apply again, which will then remain permanent.

In addition, the Senate version makes permanent the disallowance of deductions for foreign personal property taxes unless they are incurred in the course of a trade or business.

Universities are usually tax-exempt on their income in the USA. However, there is an excise tax that has now been significantly modified. This tax is currently levied on the net investment income of certain private universities that have at least 500 paying students, have fixed assets of at least $500,000 per student and meet other requirements. Previously, a uniform tax rate of 1.4% applied.

The Senate version, and thus the final version, introduces a graduated excise tax based on the amount of endowment assets:

• 1.4% for student-adjusted endowment assets between $500,000 and $750,000
• 4% for endowment assets between $750,000 and $2 million
• 8% for foundation assets over $2 million

This significant increase in the excise tax will likely cause affected universities to rethink their investment strategies and capital structure. Many university endowments invest a significant portion of their assets in private equity, hedge funds and foreign investment vehicles. The new graduated tax may cause institutions to reduce less liquid or foreign assets in favor of more tax-efficient or readily available investments in order to optimize after-tax returns.

In addition, the higher tax burden could result in a restructuring of investment holding structures or a greater focus on strategies with lower taxable net investment income. Universities may also adjust their capital utilization and payout strategies to offset the increased cost of capital from the excise tax. These changes could also impact asset managers and fund structures that have traditionally relied on university endowment assets as long-term capital providers.