Trump tax contains more than the itemized deductions and child taxes I previously discussed; he sought votes from modest earners, donations from the rich and manufacturing growth from business. Missing after 2025 are environmental credits for solar power, thermal efficiency and Electric Vehicles. Tax planners must enumerate the devil’s details with a crystal ball for politics. How Does OBBBA affect EIC and AMT credits for divergent incomes, clean energy, foreign tax and business taxes and diverse adjustments to income on Form 1040 with typical California non-compliance.
Tax Credits for Modest Earners
Refundable Earned Income Credits (EIC) are critical to low earners who must work to get credits when unemployment costs the government more. Low earners with less income and more children get substantially more credits. OBBBA allows MFJ Earned income below income plateaus with credits phasing down to nothing: the childless get just 7.65% credits between $8,680 and $26,820; one child merits 34% between $13,020 and $58,963; two kids merit 40% between $18,290 and $65,899; three or more merit 45% between $18,290 and $70,224.
Trump extended the ABLE savings program for the disabled and relatively low-income adults can earn non-refundable Savers Tax Credits up to $2,000. Alimony payers lose alimony deductions, but modest recipients now won’t be taxed for income received. They can’t flee or fight so easily without deductions for moving or most legal expenses. California offers parallel EIC Credits, alimony tax and Renter’s Credits.
Teachers and student borrowers get few breaks:
- Student loan interest up to $2,500 can be deducted if income hasn’t phased out beginning at $85,000 single/MFS or $170,000 MFJ.
- Trump demands tax on (COD) income for most canceled student loan debts.
- Employers can pay employee student loans up to $5,250 tax free to employees.
- 2026 Educator tax credits are $350 above the line per teacher.
Hotly disputed Premium Tax Credits paid for insurance in advance to Marketplace customers based on income declared when policies are adopted. But Form 1095-A reveals subsidies and Form 8962 claws back excess credits at the year’s end based on income earned. Income eligibility for full subsidies disappeared at 400% of Federal Poverty Levels under Obama ($62,600 single or $106,600 for a family of 3 in 2025). In response, Trump expanded Health Savings Accounts with high-deductible insurance and larger 2026 limitations of $8,750 per family or $4,400 singletons. Democrats favor Biden’s extended subsidies that improve insurance quality and reduce suffering of the uninsured.
Tax Breaks for the Rich
On Alternative Minimum Tax Form 6251, Trump permanently raised AMT exemption credits for 2026 to $140,200 MFJ with phaseouts at a million dollars, $90,100 with single or MFS phaseouts at $500,000 earnings. AMT affected 3.1% of filers before 2018 but now burdens just one in a thousand filers. 2026 Estate taxes start at $15 million, $30 million MFJ, without CA taxation.
Foreign tax credits (Form 1116) are very complicated. America taxes worldwide income but wealthy travelers may exclude 2026 foreign earned income to $260,000 MFJ. Meanwhile, average stock owners get tax credits to offset foreign taxes on dividends or interest in mutual funds or foreign rentals. Likewise, CA other state credits avoid double taxation—but CA taxes all foreign income.
Business Tax Deductions
The OBBBA makes Qualified Business Income (QBI) deductions permanent. Proprietorships, partnerships, LLCs and S-Corps, can deduct 20% of business income below 20% of taxable income plus 20% of qualified REIT dividends. Benefits phase out starting at $197,300 singletons or $394,600; complex rules about “specified trade or business,” wages paid and property owned kick in—demanding tax pros.
From 2025, OBBBA also makes 100% bonus depreciation permanent for assets depreciating under 20 years (e.g. equipment, cars, computers) but adding in “qualified production property” like new factories. Domestic research or experimental expenditures are fully deductible too but can be amortized over five years or even claimed by small businesses in amended returns. These reforms encourage American business investment with higher post-tax cash flow.
Taxes will fall with OBBBA and fall faster for businesses and the rich. Will tax breaks stimulate Trump’s economy fast enough to compensate America for painfully reduced spending and increased deficits?
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, is a Santa Cruz Mountain Certified Financial Planner who gives holistic financial advice as his client’s fee-only fiduciary. These articles are not personal financial, mortgage, tax or investment advice; consult appropriate professionals. Learn more at www.carpediem.financial.
