What is the One Big Beautiful Bill Act?
Published on October 02, 2025
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What is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act (OBBBA) is a sweeping tax law signed on July 4, 2025. At its core, it aims to cut federal income tax burdens for certain groups like workers earning tips, employees logging overtime, and seniors on Social Security. Some provisions run through 2028, while others are set up as permanent.
For US expats, the Act matters because it reshapes deductions, credits, and reporting thresholds that could change how you file your US taxes while living abroad. Even if you’ve long relied on the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC), the OBBBA still touches parts of your return.
When did the One Big Beautiful Bill Act become law, and when does it apply?
The OBBBA officially became law on July 4, 2025. It applies retroactively to January 1, 2025, so expats will see these changes reflected in returns filed in 2026.
Many provisions, including the US$6,000 senior deduction, the tax-free status of tips and overtime, and the increased Child Tax Credit, are temporary and will expire in 2028 unless extended. That means we could be talking about another “tax cliff” in a few years.
What are the major tax changes under the OBBBA?
The Act packed in a lot, but here are the highlights most people will notice:
- Tips and overtime pay are now exempt from federal income tax: If you’re a server or gig worker in the US, this is huge. The same goes for hourly workers pulling long shifts.
- Seniors get a US$6,000 bonus deduction: This sits on top of the existing senior standard deduction. For many, it means Social Security income will finally be untaxed.
- Child Tax Credit jumps from US$2,000 to US$2,200 per child: Only one parent now needs an SSN. However, children must still have valid SSNs; no more ITIN loophole.
- SALT (state and local tax) deduction cap rises: Higher-income taxpayers who still file US state returns may benefit.
- Small business perks expand: The Section 199A deduction climbs from 20% to 23%, and 100% bonus depreciation comes back for investments.
Some of these are broad tax cuts, others are targeted fixes. Together, they reshape how many households plan their returns.
Does the One Big Beautiful Bill Act apply to tips and overtime earned abroad?
Probably not in most cases. The OBBBA defines “qualified tips” and “qualified overtime” through US reporting systems like W-2s and 1099s, and it ties overtime rules to the Fair Labor Standards Act (FLSA). These frameworks generally don’t apply overseas unless you’re working for a US employer abroad that issues U.S. payroll forms.
So if you’re a bartender in Paris or a hotel worker in Sydney, your tips likely won’t be treated as deductible under the Act. Plus, if you’re excluding income with the FEIE, you can’t “double dip” by also claiming the tips/overtime deduction.
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How does the One Big Beautiful Bill Act affect US expats overall?
Expats won’t see as much benefit as US-based workers, but there are some wins:
- Foreign Tax Credit (FTC) is untouched: That’s a big relief, especially since early drafts included a surtax (Section 899) that would have undermined it.
- Child Tax Credit (CTC) increased: For 2025, the CTC rises to US$2,200 per child. The initial US$2,500 didn’t make it into the final law, but still a boost.
- Foreign gift and inheritance reporting hasn’t shifted: Despite speculation, the reporting threshold for Form 3520 stays at US$100,000. That’s good news if you receive smaller transfers from relatives abroad; you won’t suddenly get dragged into filing a form just for a modest gift.
- FBAR and FATCA thresholds are unchanged: The same US$10,000 FBAR trigger applies, along with the higher Form 8938 thresholds for those living abroad. Penalties haven’t officially increased under this Act, but the reality is that they were already harsh.
What happened to Section 899 in the One Big Beautiful Bill Act?
Section 899 was the scariest piece for expats. It would have slapped higher US tax rates on Americans living in countries with digital services taxes (DSTs), like the UK, France, Canada, Spain, and Australia.
Luckily, it never made it into the final law. The US struck a deal with G7 countries to ease DSTs, so Section 899 was cut before the Act was signed. If you live in one of those countries, that’s a massive bullet dodged.
Are there downsides to the One Big Beautiful Bill Act for US expats?
Yes. Here are the main ones:
- Not all benefits apply overseas: The new exemptions for tips and overtime mainly apply to US jobs with US payroll reporting. Expats working for foreign employers are unlikely to qualify.
- Some provisions may expire. The US$6,000 senior deduction, tax-free tips/overtime, and the bigger Child Tax Credit all sunset after 2028 unless extended. That uncertainty makes long-term planning trickier.
- Foreign gifts and inheritance reporting may tighten: Some tax advisors believe the reporting threshold for foreign gifts could be lowered from US$100,000 to US$50,000, though the IRS hasn’t formally updated this yet. Expats should watch for guidance before assuming this change is locked in.
- No fix for double taxation: The Act leaves the biggest expat issue, citizenship-based taxation, untouched. Expats must still rely on the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC) to avoid being taxed twice.
Bottom line: While the One Big Beautiful Bill Act eases burdens in the US, it doesn’t fix the structural issues expats face.
What should US expats do now to prepare for OBBBA changes?
Here’s a practical checklist:
- Review your credits: Now that the Child Tax Credit is bigger, compare whether the FEIE or FTC gives you the best outcome.
- Watch gift thresholds: Keep an eye on changes in foreign gift reporting. There is no confirmed reduction yet, but you might be expected to file Form 3520 more often.
- Stay current with IRS guidance: The IRS hasn’t yet rolled out new forms for tips/overtime deductions, and expats need to see if foreign payroll systems will align.
- Plan for 2028: Consider what happens if these provisions sunset and whether to restructure assets or investments before then.
- Work with an expat tax specialist: These changes are new for everyone, including the IRS. Expert support reduces mistakes.
FAQs
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Can I use the tips and overtime exemption if I work abroad?
Only if your employer issues US payroll forms, most foreign jobs won’t qualify.
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Will the new Child Tax Credit apply if my child has an ITIN?
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Does the OBBBA affect the Foreign Earned Income Exclusion (FEIE)?
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Are FBAR and FATCA thresholds changing under this law?
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Do these provisions expire after 2028?
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