By Kemberley Washington, CPA, Bankrate.com
From extending the tax cuts he signed into law in 2017 to ending taxes on tips, overtime pay, Social Security benefits and more, President Donald Trump has never made a secret of his goal to make sweeping changes to the U.S. tax code.
During his first stint in office, Trump massively overhauled tax law by passing the Tax Cuts and Jobs Act, or TCJA, of 2017. Now, many of those tax provisions are set to expire at the end of 2025, leaving an opportunity for the president to extend, and potentially expand, his tax policy agenda.
“We’re seeking permanent income tax cuts all across the board, and to get urgently needed relief to Americans hit especially hard by inflation,” Trump said during his formal address to Congress in March.
Republicans in Congress are currently doing all they can to turn Trump’s agenda into reality.
Senate Republicans on Wednesday unveiled a comprehensive tax policy proposal that would permanently extend the tax cuts enacted in the TCJA, plus add new tax cuts worth about $1.7 trillion, including eliminating taxes on tips and overtime pay. The cost of extending the TCJA alone adds up to about $4 trillion in lost government revenue over 10 years, according to a report by the Committee for a Responsible Federal Budget, a nonpartisan, nonprofit research group.
In February, the House of Representatives passed a budget blueprint that calls for $4.5 trillion in tax breaks and $2 trillion in spending cuts to health care and other programs.
Now the question is whether Senate and House Republicans can manage to come to agreement on a comprehensive tax cuts bill. While Republicans hold a slim majority in Congress, there are debates even within the party about how to pay for tax cuts amid concerns about a growing U.S. deficit and massive potential cuts to essential programs such as Medicaid.
How tax laws may change
While it’s unclear what the final law will look like, it seems likely that some type of tax-law overhaul will happen this year.
Under the TCJA, key changes were made to individual tax laws, including the near-doubling of the standard deduction and increasing the child tax credit to $2,000, from $1,000. Plus, the top tax rate for high-income earners was reduced to 37%, from 39.6%, and a new 20% deduction was created for certain types of business income.
While some of the TCJA’s provisions were permanent and others are set to expire at the end of 2025, U.S. lawmakers can include just about any tax provision they want in a new comprehensive tax bill — assuming they can get it passed.
As a result, along with the possibility of extending the TCJA’s expiring provisions — which would effectively maintain the status quo for U.S. taxpayers — there’s a decent chance lawmakers will change other tax laws as well.
Trump has promised a variety of tax breaks, both during his campaign and now as president, including:
- Eliminating taxes for people who earn less than $150,000
- Removing the current $10,000 cap on the deduction for state and local taxes
- Eliminating taxes on tip income, overtime pay and retirees’ Social Security benefits
- Creating a tax deduction for car loan interest payments for American-made cars
Here are additional ways your taxes may change in 2025 and beyond.
1. Tax benefits for small businesses
The TCJA lowered the corporate tax rate for businesses to a flat 21%, from a graduated system that had a top rate of 35%. That change was made permanent and isn’t part of the TCJA’s expiring provisions (though just about any tax law is potentially subject to lawmakers’ modifications).
But the TCJA also offered a major tax break to pass-through businesses, such as partnerships, S-corporations and sole proprietors: If those businesses meet income limits and eligibility requirements, they can deduct 20% of their qualified business income, or QBI — a major tax benefit for businesses that qualify. That provision is slated to expire at the end of 2025.
While there is bipartisan support to extend the QBI deduction, also known as the Section 199A deduction, it’s unclear at this point what will happen.
Plus, pass-through businesses — where business owners report income on their personal tax return and pay individual income tax rates on that income — also benefit from the TCJA’s lower marginal tax rates.
Jan Lewis, a certified public accountant and partner with BMSS Advisors and CPAs in Ridgeland, Miss., says small-business owners would appreciate it if Congress extended the TCJA provisions such as the qualified business income deduction. Lewis says the certainty of having the laws in place for several years rather than constant change would be welcome news.
Some business owners “may feel better about investing in their businesses and local economies with an extension of TCJA,” Lewis says.
2. State and local taxes (SALT) cap
To pay for the cost of TCJA, lawmakers eliminated personal exemptions, which were a way for taxpayers to reduce their taxable income, and capped the amount taxpayers could claim for the state and local tax (SALT) deduction at $10,000. The SALT deduction lets taxpayers write off their property taxes, plus their state and local income or sales taxes.
On the campaign trail, Trump suggested he wanted to remove the SALT limit. Meanwhile, other ideas currently being floated by lawmakers include raising the cap to $20,000, from $10,000, or doubling the amount for couples who are married filing jointly. The current $10,000 cap applies to all filing statuses, including single filers and those married filing jointly (the exception is those who are married but file separately, for whom the cap is $5,000).
Of course, removing the cap, or even increasing it, would raise thorny questions about how to fund the extension of other elements of the TCJA. “Repealing the SALT limit would be taking away some of the revenue to pay for other TCJA reforms,” Lewis says.
3. Other proposed tax breaks
Trump also said on the campaign trail that he wants to eliminate taxes on certain types of income.
—No tax on Social Security benefits: “Seniors should not pay tax on Social Security,” Trump said on his social media site Truth Social in July. Some retirees owe income tax on Social Security benefits if they receive income from other sources that pushes them over the Social Security Administration’s income thresholds. Those with low to modest income typically don’t pay taxes on Social Security benefits.
—No tax on overtime pay: In September, Trump proposed eliminating taxes on both overtime pay and tip income. Although Trump has not provided additional details of how the plan would work, the Tax Foundation, a nonprofit tax policy organization, said that eliminating taxes on overtime pay could “distort” the labor force. That is, workers might take on more overtime jobs, because those would be more attractive than salaried positions that are exempt from overtime rules.
—No tax on tip income: Trump provided few details for eliminating taxes on tip income. But Republication lawmakers in the U.S. House and Senate have introduced companion bills that outline a tax deduction of up $25,000 for tip income. (Read more: Tax deductions: How they work, how to claim them)
—A tax deduction for interest paid on car loans: The details were vague, but in a speech to a joint session of Congress on March 4, Trump said: “I also want to make interest payments on car loans tax deductible, but only if the car is made in America.”
—Tax on U.S. expatriates’ income: In October, Trump said he supports reducing taxes on U.S. citizens who live abroad. Currently, expatriates are subject to tax on their income despite living outside the U.S. and are required to follow the same rules as taxpayers who live in the U.S. As such, expats must report all taxable income and pay taxes in accordance with U.S. tax law. That said, a good portion of foreign income — in 2025, $130,000 for qualified single filers and $260,000 for qualified married-filing-jointly filers — can be excluded from U.S. taxes. Plus, there’s a tax deduction to offset expats’ housing costs. However, even expatriates who qualify for the foreign earned income exclusion and other tax benefits must file a U.S. tax return.
4. Tariffs and the External Revenue Service
Since taking office in January, Trump has embraced tariffs, including announcing a minimum 10% tariff on all goods imported into the U.S., plus reciprocal tariffs on numerous countries, on top of 25% tariffs on all car and car part imports, 25% tariffs on all products from any country that imports Venezuelan oil, 25% tariffs on certain products from Canada and Mexico, and more.
Relatedly, in January, Trump announced on Truth Social that he would create an External Revenue Service to collect tariffs, duties and revenues from foreign sources. Generally, U.S. companies that buy foreign goods pay import tariffs to the U.S. government. Research has shown that consumers often end up footing the bill for higher tariffs.
“The implementation of tariffs had an impact on small businesses over the years, as many U.S. businesses rely on goods imported from other countries,” says Brandi M. Samuel, a certified public accountant and international tax principal at Windham Brannon LLC, in Atlanta.
“In addition to the impact on small businesses, customers who purchase these goods are likely to also experience financial strain” under tariffs, Samuel says.
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