Highlights
- Although few provisions in the One Big Beautiful Bill Act (OBBB) directly reference Tribal governments or their members, the legislation includes several amendments to the U.S. Internal Revenue Code (Code) that could impact both.
- Changes to the Adoption Tax Credit allow Tribal governments to determine whether a child has a "special need" for purposes of adoptive parents' eligibility for the full credit. Additional provisions include a new tax deduction for seniors and new deductions for workers who receive qualified tips and overtime compensation.
- Provisions affecting the New Markets Tax Credit, Low-Income Housing Tax Credits and Opportunity Zones may incentivize investment in Tribal lands.
- Other tax parity legislation remains before the U.S. Senate as part of the Tribal Tax and Investment Reform Act of 2025. If enacted, this legislation would have broad implications for Tribal governments under the Code, including treatment of tax-exempt Indian General Welfare Benefits under the Social Security Act, expansion of the ability of Tribes to issue tax-exempt bonds and reforms to burdensome pension rules that currently require Tribes to maintain separate plans for their governmental and business operations.
Signed into law by President Donald Trump on July 4, 2025, the One Big Beautiful Bill Act (OBBB) contains extensive revisions to the U.S. Internal Revenue Code (Code). (For a comprehensive analysis of the bill, see Holland & Knight's previous alert, "Trump Signs the One Big Beautiful Bill Act," July 3, 2025.) Although few provisions directly reference Tribal governments or their members, several could impact Indian Country. Work also remains because with the OBBB, Congress failed to address long-standing Tribal tax priorities.
This Holland & Knight alert offers an overview of several provisions included in the OBBB that will likely impact Tribal governments and their members. Following the overview is a brief description of several Tribal tax priorities that remain pending before the U.S. Congress.
Adoption Tax Credit Parity Provision
Section 23 of the Code provides a tax credit to parents for certain adoption expenses, including adoption fees, court costs and attorney fees (Adoption Tax Credit). Individuals who adopt a child with a special need are often eligible for the full credit even if they pay no adoption expenses that would qualify for the credit. Before the OBBB's passage, only states could determine that a child had a special need. Under the OBBB, Tribal governments now have the same authority to determine that a child has a special need for purposes of the Adoption Tax Credit. This increases access to the full Adoption Tax Credit for taxpayers who adopt a child when a Tribal government has determined that the child has a special need, correcting a longstanding Tribal parity issue in the Code. This provision was included in the Tribal Tax and Investment and Reform Act of 2025 (discussed below) and is the only provision from that bill to be included in the OBBB.
New Tax Deduction for Seniors
Under the OBBB, taxpayers aged 65 and older are entitled to a new deduction of up to $6,000. The new deduction begins phasing down when the taxpayer's modified adjusted gross income exceeds $75,000 (or $150,000 in the case of a joint return). This new deduction goes into effect for the 2025 tax year and will sunset at the end of 2028.
Deduction for Tipped Workers and Overtime Pay
The OBBB offers tax relief to many tipped workers and those who earn overtime pay. Under the OBBB, both provisions will sunset at the end of 2028.
Deduction for Tipped Workers
The OBBB created new Section 224 of the Code. Under Section 224, individuals who receive cash tips in an occupation that "customarily and regularly received tips" as of the end of 2024 may claim a deduction of up to $25,000. The new law does not provide a definition for occupations that "customarily and regularly received tips"; however, it requires that the U.S. Department of the Treasury issue a list of occupations that customarily and regularly received tips as of the end of 2024.
The new deduction for tipped workers begins phasing down when the tipped worker's modified adjusted gross income exceeds $150,000 (or $300,000 in the case of a joint return). The deduction is allowed only for qualified tips that are included on a W-2 or information statement furnished to the individual by their employer showing the portion of payments reasonably designated as cash tips and the occupation of the person receiving such tips. Employers should take notice of this requirement, as it will require changes to information statements.
To qualify for this deduction, individual taxpayers must have a Social Security number. Additionally, if married, individuals must file their taxes on a joint return.
Given that many Tribal governments employ tipped workers at casinos, restaurants and other establishments, this new law could be very beneficial. However, Tribes and their casinos that have tip agreements with the IRS should consider potential implications.
Deduction for Overtime Pay
The OBBB also provides for a new deduction of up to $12,500 (or $25,000 in the case of a joint return) for "qualified overtime compensation" received by an individual. New Section 225 of the Code defines "qualified overtime compensation" as overtime compensation paid to the individual that is required under Section 7 of the Fair Labor Standards Act of 1938.
Similar to the tipped worker deduction, the overtime pay deduction begins phasing down when an individual's modified adjusted gross income exceeds $150,000 (or $300,000 in the case of a joint return). For an individual to claim the deduction, his or her employer must also include the portion of any payments that are qualified overtime compensation on a W-2 or information statement furnished to the individual. Additionally, as with the tipped worker deduction, individuals must have a Social Security number and, if married, they must file their taxes on a joint return.
Provisions Affecting the New Markets Tax Credit, Low-Income Housing Tax Credits and Opportunity Zones
The OBBB permanently extends the New Markets Tax Credit and permanently renews Opportunity Zones. It also increases allocations for the Low-Income Housing Tax Credits and modifies Opportunity Zones by imposing stricter eligibility requirements and providing enhanced benefits for rural investments. These programs have incentivized investments in economically distressed areas, including many Tribal lands. As such, Tribal governments may wish to consider how the OBBB's provisions related to these programs may benefit Tribal communities.
Rescissions of IRA Funds
The OBBB additionally repeals unobligated funds from the Inflation Reduction Act (IRA) for a host of federal programs, including the Tribal Energy Loan Guarantee Program. Under that program, the U.S. Department of Energy secretary could provide loan guarantees to federally recognized Tribes for amounts due on loans for energy development projects. The OBBB eliminates funding from numerous other programs funded under the IRA, including grant programs for transmission deployment and siting. Additionally, the OBBB scales back many of the IRA's clean energy tax credits and incentives, which Tribal governments had increasingly explored due to the availability of direct pay.
Further information about these and other similar changes is provided in Holland & Knight's Comprehensive Analysis of the OBBB, as well as its previous alert on the OBBB's impacts on IRS clean energy tax credits.
Modifications to Gambling Tax Law
The OBBB also reduces the amount of gambling losses individuals may deduct on their annual tax returns. Under previous law, individuals could deduct 100 percent of their gambling losses up to the extent of their gambling winnings. Following the OBBB's passage, individuals may deduct only up to 90 percent of their losses as of the 2026 tax year.
To demonstrate how this change may affect taxpayers, consider, for example, an individual who has $100,000 in gains from gambling and $100,000 in losses from gambling. Previously, under Section 165(d) of the Code, that individual could fully deduct all $100,000 of his or her gambling losses, leaving the individual with a zero-dollar net effect. Beginning in 2026, that same individual is limited to a deduction of $90,000 (90 percent of $100,000), leaving the individual with $10,000 of tax gain from gambling despite having no economic gain. This change may increase taxes on frequent and professional gamblers and could carry with it implications for Tribal casinos.
Tribal Tax and Investment Reform Act of 2025
As previously discussed, the OBBB included one provision aimed at providing tax parity to Tribal governments related to the Adoption Tax Credit. However, a number of Tribal tax priorities remain unaddressed.
Introduced by Sens. Catherine Cortez Masto (D-Nev.) and Lisa Murkowski (R-Alaska), the Tribal Tax and Investment Reform Act of 2025 (S. 2022) includes Tribal government parity provisions in the areas of tax-exempt bond financing, excise tax exemptions, employee plan administration, Tribal charity funding and child support enforcement, among others. Below is a discussion of three of S. 2022's proposed changes.
Tax-Exempt Bonds
Specifically, the bond reforms would address certain limits on Tribal governments' ability to issue tax-exempt bonds under the Indian Tribal Governmental Tax Status Act of 1983 and current Section 7871 of the Code. Essentially, current law prohibits Tribal governments from issuing tax-exempt private activity bonds in most circumstances, and it limits tax-exempt bond status to bonds when "substantially all" of the proceeds from their issuance will be issued in the "exercise of any essential governmental function." Currently, Section 7871(e) provides that "essential governmental function(s)" do not include "any function which is not customarily performed by State and local governments with general taxing powers."
S. 2022 would amend Section 7871 to remove many restrictions placed on Tribal governments' ability to issue tax-exempt private activity bonds. It would also eliminate the "essential government function" test, providing Tribal governments increased access to tax-exempt financing opportunities for commercial projects. This would provide additional parity with state and local governments that already have access to these types of tax-exempt financing opportunities.
Pensions
Next, certain pension reforms included in S. 2022 would expand the definition of a "governmental plan" to include plans established by entities "wholly owned or controlled" by Tribal governments and eliminate the essential governmental function test currently in Section 414(d) of the Code. This change – and other similar changes proposed in S. 2022 – should help ensure that more types of pension and employee benefits for Tribal entity employees are administered in the same manner as benefits provided to employees of state governments, providing parity for Tribal governments while reducing administrative burdens.
Social Security Benefits
Tribal governments should also take note of the impact this legislation would have on Indian General Welfare Benefits programs. Notably, S. 2022 includes provisions that would impact how these benefits are treated by the Social Security Administration, including for purposes of determining eligibility for Supplemental Security Income (SSI). If enacted, S. 2022 would exclude Indian General Welfare Benefits from counting as "income" for the purpose of determining eligibility for SSI, as well as certain Medicaid programs and benefit programs administered by states. Additionally, it would exclude any Indian General Welfare Benefits from counting as "resources" for the purpose of determining SSI eligibility for the nine-month period after the General Welfare Benefit is received. Tribal governments with minors' trusts would also benefit, as grantor trusts for which the Tribe is the grantor would be excluded from resources for SSI purposes.
Tribal governments should lend their support to S. 2022, as it would have broad implications for their members, help lift up their economies and reduce administrative burdens.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
