At the end of February, the House passed a budget calling for a tax cut of up to $4.5 trillion over a decade.
The hug ring is now beginning.
Many of the tax cuts in the 2017 tax bill passed during President Trump's first term are expected to expire at the end of this year. He wants them to be renewed and Congress shows little desire to cross him.
Extending these provisions would consume most of that $4.5 trillion, and in the campaign trajectory, Trump has come up with many additional ideas for tax cuts that cost a lot of money. Few people are likely to pass.
Still, something strange happens to taxes late at night. Many in Congress don't see them and never know what an aide can do in the hours before the vote.
These are things to note.
Provisions from the bill before it expires at the end of 2025
tax
The 2017 tax law reset and lowered the percentage of income that most people pay in federal income tax. You can now see where you are on the Internal Revenue Service website. The Tax Foundation website has a table for 2017, using dollar numbers that have not been adjusted for inflation that has occurred since.
If new invoices have not been passed to extend these reductions, the percentage will return to the 2017 location where each tax bracket has a new revenue band.
Standard deduction
The deductions that all taxpayers generally use (and actually use) have almost doubled in the wake of the 2017 tax law, unless they itemize the deduction. As a result, fewer people have itemized the deduction, making it easier to submit returns.
Without the new law, standard deductions will be dramatically reduced, but other tax credits could return to more generous levels from before 2017.
“Salt” – State and Local Tax Credits
The 2017 law set a $10,000 cap on the amount of state and local taxes that can be deducted on a federal tax return when itemizing deductions. This has caused a major problem for high-income state and local communities with high taxes as they pay five figures in state income tax and an additional five figures of property tax.
If there is no change, the cap will expire. One possibility to note is the new, higher cap that will satisfy both parties' legislative members whose members are not satisfied with the $10,000 limit.
Child Tax Credit
The 2017 law doubled the child tax credit to $2,000 for each eligible child for co-applicants making up to $400,000 (and $200,00 for a single filer). People with high incomes may be able to claim a portion of it.
Up to $1,700 of that can be delivered in the form of a refundable credit. This means that you can return the money even if the taxpayer is not liable for tax payments. (Taxpayers can also reduce the tax amount for other dependents who are not children up to $500.)
Without action, the credit and refundable portion will be reverted to a maximum of $1,000 per child for joint filers earning up to $110,000 (or $75,000 for a single filer).
Qualified business income
The 2017 law created a new system that allows many self-employed and small business owners to deduct up to 20% of their business income.
Without an extension, this opportunity will disappear. The extension can contain changes.
Real estate tax-free
The federal real estate tax exemption is $13.99 million. It is something that you can hand over to someone (other than your spouse) when you die.
Without an extension, the exemption amount will fall by more than half.
Other changes
Without an extension or revision to the current rules by the end of the year, the amount of deductible mortgage interest could rise up to $250,000, making it easier to qualify for property and theft loss deductions.
More people may qualify for deductions related to moving costs for work-related reasons, and the scary alternative minimum tax may apply to more people.
When converting a 529 education savings account into a so-called capable account, you will need to pay taxes, and some people will be able to deduct the costs of tax services again. On the other hand, employers may lose the ability to cover a certain amount of employee student loan payments (as employee benefits) without the amount being taxed as income.
The Congressional Research Service updated a guide to many of these items in November.
Campaign Declaration and Other Proposals
There are no taxes on social security benefits
About 50% of Social Security Beneficiaries pay some income tax at least on what they get. He's enough to make this campaign pledge so expensive, and he can crush many other goals.
It probably won't happen. It may not even be in the early draft tax law that members of Congress circulate.
There are no taxes as a hint
The pledge was popular in Nevada, a swing state filled with restaurant and casino workers that Joseph R. Biden Jr. won in 2020 and lost in 2024.
Such laws may come with restrictions that limit deductions by size, industry and revenue.
There are no taxes on overtime payments
Trump introduced the concept in September. One big question about this proposal and tips: Do workers pay nothing to Social Security or Medicare, or do they have no federal income tax?
Vehicle loan interest deduction
The campaign pledge reappeared this week in the president's speech to Congress.
It is one of Trump's least expensive proposals, as it only applies to vehicles made in the US. If not only some Americans itemizing the deduction, but all shoppers are eligible to use it, it could change the economically meaningful buyer's behavior.
Taxes on university scholarships and fellowships
The House Committee on Methods and Instructions document laying out the possibilities of various tax laws suggests that all scholarship and fellowship incomes are taxed. Now, when people use it for tuition and related expenses, it is usually excluded from taxable income.
In the face of it, it can raise a lot of money and please the president who hopes that much of the higher education industry will be dismantled.
But those who work in those schools are not stupid. They will quickly resmear their merchandise and eliminate other awards that are Merritt scholarships and coupons with other names.
End of the electric vehicle tax credit
The law allows many people who purchase electricity (and protect other specific energy) vehicles to take advantage of tax credits. The amount depends on several factors and is kept at $7,500 a year.
Trump loves fossil fuels and Congress was able to soothe him by trying to cancel credits by the end of 2032.
