President Trump’s Republican-backed tax bill is on its way through the House of Representatives as of Sunday night, May 18. This comes after some pushback days before by Republican representatives, and a vote on passage through the House is possible later this week.  

If passed, this ginormous tax bill could affect your taxes this year. The bill encompasses extending the 2017 Tax Cuts and Jobs Act while also adding several other reductions. It’s important to note that the bill is likely to change as it moves through the legislative process.   

A few key definitions:  

  • Tax credit: Reduces amount of taxes owed; doesn’t depend on tax rates  
  • Tax deduction: Reduces taxable income; dependent on tax rates  
  • Above-the-line deduction: Tax deduction you can take before calculating your adjusted gross income. (Called “above the line” because they appear above the line where AGI is calculated on the IRS Form 1040).  
  • Standard deduction: Fixed dollar amount you can subtract from your income 
  • Itemized deduction: Specific expenses you must list out to subtract from your income (instead of taking the standard deduction)  

 

If it were to remain the same, here’s what this could look like for you:  

1. Extension of the 2017 tax cuts  

You may not see a change with the extension of the 2017 TJCA because most Americans will remain in the same tax bracket levels they were in since the cuts went into effect in 2018. However, without an extension of the lower tax brackets, more than 6 in 10 tax return filers could see an increase in their tax bill in 2026, according to the nonpartisan Tax Foundation.   

In addition to the extension, the bill would give taxpayers an average of $1,300 in tax reductions.  

 

2. New tax deduction for senior citizens  

Proposed Timeline: 2025 tax year through 2028 

If you are 65 or older, you would receive an extra $4,000 deduction per taxpayer. You could use the deduction if you either itemize or use the standard deduction starting in the 2025 tax year through 2028.  

There is an income limit for this deduction, available for those with a modified adjusted gross income of $75,000 or less for single filers and $150,000 married couples filing jointly.  

 

3. Increase standard deduction for all taxpayers 

Proposed Timeline: 2025 tax year through 2028 

The current standard deduction, a result of the 2017 tax bill, will expire at the end of the year. In this new bill, the standard deduction would increase from: 

  • $15,000 to $16,000 for single taxpayers 
  • $22,5000 to $24,000 for head of households 
  • $30,000 to $32,000 for married couples filing jointly  

 

4. Child Tax Credit increases and extends 

Proposed Timeline: Permanent 

The new proposal would increase the Child Tax Credit to $2,500 per child for the 2025 tax year through 2028, then drop back to $2,000.  

Otherwise, the credit will revert to its pre-2017 amount of $1,000 per child in 2026. This change will be permanent, according to the House Ways and Means Committee.  

 

5. Eliminates 1099-K reporting  

Proposed Timeline: Permanent 

The new bill looks to eliminate the 2023 rule that required payment platforms, such as Venmo, Cash App, and PayPal, to send you a 1099-K tax form if you received over $600 in a year. Previously, you only had to report your income through the apps if you had more than 200 transactions exceeding $20,000 in revenue.  

 

6. Eliminates tip taxes  

Proposed Timeline: 2025 tax year through 2028 

The bill will rid of taxes on tipped income only for the 2025 tax year through 2028.  

 

7. Eliminates overtime pay taxes  

Proposed Timeline: 2025 tax year through 2028  

An above-the-line deduction would eliminate taxes on eligible workers’ overtime pay from the 2025 tax year through 2028.  

 

8. Car loan interest deduction  

Proposed Timeline: 2025 tax year through 2028 

If you have a car loan, you could deduct up to $10,000 for interest paid on vehicle loans, eliminating taxes on car loan interest.  

The income limits set would phase out taxpayers with a modified adjusted gross income above $100,000 for single filers and $200,00 for married couples filing jointly. Only vehicles assembled in the United States will qualify for the deduction.  

 

9. Estate tax exemption expansion 

Proposed Timeline: Permanent increase; adjusted for inflation 

The 2017 Tax Cuts and Jobs Act doubled the estate tax exemption but is set to expire at the end of 2025. Currently, gifts and inheritances up to nearly $14 million for individuals and $28 million for married couples are exempt from federal gift or estate taxes. The bill aims to permanently increase the threshold, first to $15 million for individuals and $30 million for married couples in 2026. Then, the threshold would be indexed to inflation. 

However, the threshold will decrease to about $7 million for each individual in 2026 without the proposed bill.  

 

10. Increase pass-through deduction for small businesses 

Proposed Timeline: Permanent 

The pass-through deduction would increase from 20% to 23% for small businesses, including partnerships, sole proprietorships, and S corporations. These small businesses could subtract 23% of their qualified business income from their taxes, which lowers tax liability. 

 

Our team of Abacus! Professionals will continue to update you on key changes and provide better guidance as the legislation develops. Contact us at 417-823-7171.