During his initial term in office, President Donald Trump implemented significant modifications to the tax code. Now, he is seeking to initiate another round of reforms.
House Republicans are currently drafting a “big, beautiful” legislative proposal aimed at fulfilling many of Trump’s economic commitments while affecting various dimensions of the personal finances of Americans. As the first substantial legislative initiative for the GOP-controlled 119th Congress, the latest 389-page iteration of the tax bill provides insight into the direction of these proposed changes.
Initially, Republican leaders suggested a target of enacting the bill by Memorial Day; however, House officials are now striving to achieve approval from both chambers by July 4. Yet, the timeline remains uncertain as Congress has numerous tasks to address, and significant challenges are still present. The bill is still in flux and is expected to evolve as lawmakers aim for consensus while managing the party’s narrow majority in the House.
Some of Trump’s initiatives, such as abolishing taxes on tips and overtime wages, gained popularity among voters. However, these measures might face challenges if the lost revenue isn’t compensated elsewhere. The current draft of the legislation also proposes extending key income tax cuts, enhancing the child tax credit, and temporarily increasing the standard deduction.
However, implementing these changes could prove financially burdensome: According to estimates from the Joint Committee on Taxation, the proposed adjustments could increase the federal deficit by approximately $3.8 trillion from 2025 to 2034.
Additional policies that Trump has proposed, including abolishing taxes on Social Security benefits and raising the top tax rate for millionaires, have not yet been included in the current legislation but could potentially be introduced in the forthcoming weeks.
As the bill is likely to undergo various modifications, here are the pivotal tax changes outlined in the most recent version of “The One, Big, Beautiful Bill,” which the House Ways and Means Committee approved on Tuesday. The bill…
Perpetuates the Tax Cuts and Jobs Act for Long-Term Financial Stability
Numerous provisions from the 2017 Tax Cuts and Jobs Act, which significantly reduced federal income tax rates, are set to expire at the end of the year unless Congress decides to extend them. The current iteration of the House tax bill endeavors to eliminate the sunset clause, thereby “permanently preventing tax hikes,” as detailed in the text of the bill. The following tax rates would be solidified by this component of the legislation:
- 10% rate — unchanged from the 2017 rate (applies to the first $11,925 of taxable income after deductions in 2025)
- 12% rate — reduced from 15% ($11,925 to $48,475 in 2025)
- 22% rate — decreased from 25% ($48,475 to $103,350)
- 24% rate — lowered from 28% ($103,350 to $197,300)
- 32% rate — reduced from 33% ($197,300 to $250,525)
- 35% rate — remains the same ($250,525 to $626,350)
- 37% rate — decreased from 39.6% ($626,350 and above)
Eliminates Income Tax on Tips and Overtime to Support Workers
The proposed legislation would exclude income derived from cash tips from federal income taxes, potentially benefiting millions of workers across the food and beverage industry, as well as those in barbering, hair care, nail care, esthetics, and spa treatments. The measure includes a sunset clause set for Dec. 31, 2028, allowing for this tax relief throughout most of Trump’s tenure, if approved.
Additionally, another component of the bill proposes exempting overtime pay from federal tax through a similar deduction, which would also be subject to a sunset around the conclusion of Trump’s second term. This no-tax-on-overtime policy would specifically apply to overtime worked beyond 40 hours per week, excluding highly compensated employees who perform “executive, administrative, professional, and outside sales” functions.
It is important to note that payroll taxes would still be applicable to both overtime and cash tips.
Phases Out the EV Tax Credit, Impacting Electric Vehicle Purchases
If the Republicans successfully enact tax reform this summer, the $7,500 EV tax credit may be eliminated, a development anticipated following the last election. While there remains a brief opportunity for consumers to purchase electric vehicles and benefit from this tax credit, the window is closing rapidly.
The EV tax credit was designed to provide an incentive, now available as a point-of-sale rebate, to electric vehicle customers who meet specific income criteria. Even more attractive incentives have been offered for EV leases, and some buyers of used electric vehicles have qualified for a credit of up to $4,000.
However, under the House bill, these credits would cease to exist effective Dec. 31. A limited number of EV tax credits may still be accessible for a year in 2026, but they would only apply to models produced by manufacturers that have sold fewer than 200,000 EVs.
Establishes ‘MAGA’ Accounts for Children’s Future Financial Growth
Among the more unexpected elements in the proposed legislation is the introduction of “MAGA” accounts, or “money accounts for growth and advancement,” designated for children under the age of eight. These tax-advantaged accounts would restrict access to the funds until the child reaches 18 years of age.
The plan allows for annual contributions up to $5,000, enabling parents to save for college or other significant future expenses. Notably, the proposal includes a one-time government contribution of $1,000 for children born between 2025 and 2028.
A spokesperson for Trump emphasized that “MAGA accounts would empower American children to achieve the American Dream by providing a solid financial foundation,” highlighting the initiative’s long-term vision.
Increases the Standard Deduction for Greater Tax Relief
The standard deduction, which taxpayers can utilize if they choose not to itemize their deductions, represents a fixed amount of income exempt from federal taxation. For the tax year 2025, this amount is set at $15,000.
The House bill aims to extend the increases in the standard deduction introduced by the TCJA overhaul, which nearly doubled the deduction from its previous level. Additionally, two significant amendments are proposed: initially, the bill would raise the deduction by $1,000 for single filers and $1,500 for couples until 2028. Furthermore, an “enhanced deduction” of $4,000 would be available for older Americans during the same period, although income limitations would govern eligibility.
Enables Charitable Contribution Deductions for Non-Itemizers
Currently, the tax code incentivizes charitable donations primarily for individuals who itemize their deductions, leaving the majority who benefit from the standard deduction without any tax advantages. The House bill seeks to rectify this by allowing non-itemizers to claim an above-the-line deduction of $150 for single filers and $300 for couples filing jointly, promoting charitable giving among a broader segment of the population.
Enhances the Child Tax Credit to Support Families
The House aims not only to extend the enhanced child tax credit but also to temporarily increase it by $500, raising the total to $2,500 per child for the years 2025 through 2027.
This child tax credit serves as a $2,000 benefit for families with children under the age of 17. Families earning up to $200,000 ($400,000 for joint filers) can receive the full benefit. After 2028, the child tax credit would revert to its original $2,000 amount.
However, these changes might not be advantageous for all households: Democrats have raised concerns regarding stricter citizenship requirements which they argue could diminish eligibility for approximately 2 million children. The bill stipulates that both parents and children must possess Social Security numbers to qualify for the credit.
Historically, there has been precedence—and often bipartisan consensus—for increasing the child tax credit. During the pandemic, the American Rescue Plan notably expanded the child tax credit in 2021, allowing for benefits up to $3,600 for certain families with young children. However, this was a temporary measure, and the credit returned to $2,000 in 2022.
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