Dollars and Sense

Tolbert Rowe brings his thoughts on financing and his common sense every month.

Mr. Rowe is Vice President/Lending for Bay Capital Mortgage Corp. with offices in Easton and Annapolis. He has lived in Caroline for his entire life and supports the county by volunteering in a variety of ways. He currently lives near Greensboro with his wife Jeanne

and daughter Kelsey.

 The 4th of July 2025 brought more than just fireworks in the United States as POTUS Trump signed the “One Big Beautiful Bill Act” (OBBBA) into law. Overcoming push back from several Republican legislators including our own Congressman Andy Harris, Trump managed to secure just enough votes to pass the largest tax and spending bill during peacetime.

Good, bad, or indifferent, the OBBBA impacts every person and business in our country, some more significantly than others. We can argue about the positives and negatives, but one thing is for certain, without the benefit of a windfall of revenue from tariffs the spending deficit would be significantly higher than what is currently being projected.

The primary benefit of the passage of BBB is the extension of the 2017 Trump tax cuts which were set to expire December 31, 2025.

The elimination of federal income tax on overtime earnings and tips is a big bonus for many American workers. Those hourly employees who regularly work more than 40 hours per week, and those who rely on the generosity of the customers they serve can look forward to a windfall coming their way.

Tip income, up to $25,000 per year, will be exempt from Federal income tax this year until 2028. Those who have paid tax on their tips thus far in 2025 can look for a refund when filing 2025 taxes. Going forward there should be no withholding of Federal taxes in 2025 up to the $25,000 limit.

Overtime income up to $12,500 is exempt from Federal taxes. The same applies as tips in that what has been paid thus far in 2025 will be refunded and no tax on future overtime earnings up to the $12,500 limit. You will see the benefit when you file your taxes and, in your future, pay stubs.

Seniors over the age of 65 get an additional $6,000 deduction for tax years 2025 to 2028, plus an additional $1,600 per taxpayer deduction when both taxpayers are over 65. Yippee for us old folks!

Those who are paying car/truck payments on vehicles “assembled” in the United States can deduct up to $10,000 in interest expense, but only if you itemize deductions.

The standard deduction for 2025 is $15,000 for individuals and $30,000 for married filing a joint return. If the total of your itemized deductions is less than these limits, there is no benefit to itemizing just take the standard deduction.

An increase in the State and Local Tax Deduction (SALT) from $10,000 to $40,000 may help to jump itemized deductions to a point where itemizing does make sense. Especially for married filing joint and higher income taxpayers.

Families with children will continue to benefit from the Child Tax Credit, which is being increased from $2,000 per child to $2,200 per child. This is direct credit against taxes owed which differs from a reduction in taxable income.

But all is not wine and roses with the OBBBA.

It is reported that 11.8 million people could lose health insurance benefits through Medicaid over the next 10 years. Some Medicaid recipients will be required to work a minimum of 80 hours per month to continue to receive benefits. A reduction of over $300 million in funding to the SNAP or Food Stamp program will impact millions, and work requirements for those age 55-64 will be implemented for some recipient to continue to benefit from the Food Stamp program.

Because of the aforementioned benefits to taxpayers there will be less revenue coming into Federal coffers. Plus, OBBBA increases defense spending by $153 Billion and border security by $150 Billion. It is estimated that the US federal deficit will increase by $2.7 Trillion over the next 10 years. According to POTUS Trump and OBBBA supporters, most of this deficit will be offset by a booming US economy and revenue from tariffs.

Which as I write this are like watching ping pong balls bouncing around in a bingo machine as Trump attempts to “get a deal” with 270 different countries with different products and commodities. What country? What product? When do they start?

The OBBBA is a massive bill, to say the least. It has codified most of what Trump ran on in the election of 2024. Its impact will be immediate and long lasting, assuming it continues to exist as signed. Time will tell how significant an impact it has on us as individuals, families, and businesses. Stay tuned!