A Republican-backed package is making its way through the House with some unexpected and novel tax cuts that might affect millions of Americans’ wallets.
The package, which would add a number of other tax cuts and make Mr. Trump’s 2017 tax cuts permanent, was approved by the House Ways and Means Committee on Wednesday.
Most taxpayers would not notice much of a change if the provisions of the 2017 Tax Cuts and Jobs Act were extended because their tax brackets would stay at the same levels as they have been since the cuts went into effect in 2018.
According to an independent Tax Foundation research, more than six out of ten filers would experience a tax rise in 2026 if there was no extension.
According to the House Ways and Means Committee, the proposed package would give Americans an average tax savings of $1,300 in addition to prolonging the 2017 tax cuts.
Among the other tax cuts are those that Mr. Trump pledged during the campaign, such removing overtime pay taxes, as well as new clauses that would reduce taxes for parents and senior residents.
House Speaker Mike Johnson, a Republican from Louisiana, wants to deliver the draft law to the Senate by Memorial Day, although it is likely to change as it passes through the legislative process.
The bill’s proposed changes to food stamps and Medicaid, which are part of the GOP’s $880 billion savings target to help fund the tax cuts, have drawn opposition from Democratic senators.
Additionally, some Democrats noted that the advantages of some of the tax cuts Mr. Trump had promised, including the removal of tip taxes, would be limited since they would expire after 2028.
House Ways and Means Committee Democrat Rep. Don Beyer of Virginia said in a statement that “[T]he made provisions like addressing taxes on tips and overtime pay temporary, as opposed to the cuts for the richest 1%, which they made permanent.”
Nevertheless, the House tax panel’s measure, which was unveiled Wednesday, offers a long list of tax benefits that might soon be enacted. The law would accomplish the following:
Introduces a new $4,000 deduction for anyone over 65.
An additional $4,000 deduction per filer would be granted to seniors 65 and over as a new tax benefit. Those who take the standard deduction or itemize could enjoy the new deduction.
With the $4,000 deduction available for individuals with a modified adjusted gross income of $75,000 or less for single filers and $150,000 for married couples filing joint returns, there would be an income cap.
Beginning with the current 2025 tax year and continuing through 2028, the tax credit would be accessible.
But, as Mr. Trump pledged throughout his campaign, there is no proposal to remove taxes on Social Security income, which is a significant omission for seniors in the most recent version of the House measure.
Since Social Security is directly funded by income taxes, the proposal to eliminate such taxes was unpopular. Policy experts have cautioned that this would probably accelerate its trust funds’ collapse.
Increases each taxpayer’s standard deduction.
Dec. 31 is the last day of the current standard deduction, which was increased by the 2017 tax reform. The House GOP bill would enhance the larger deduction from the Tax Cuts and Jobs Act and make it permanent.
The standard deduction would rise as follows, beginning in the current 2025 tax year and continuing through 2028:
- The standard deduction for single taxpayers would increase from $15,000 to $16,000.
- Household heads would get $24,000 instead of $22,500.
- The joint filing fee for married couples would rise from $30,000 to $32,000.
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Because the standard deduction decreases your taxable income by that amount, it lowers your tax burden. For example, the proposed standard deduction would lower the taxable income of $50,000 earned by single taxpayers to $34,000 for the 2025 tax year.
The Child Tax Credit is extended and increased
The $2,000 kid Tax Credit, which would otherwise return to its pre-Tax Cuts and Jobs Act level of $1,000 per qualified kid beginning in 2026, is also extended by the House measure.
The House Ways and Means Committee declared that the modification would be permanent.
Additionally, for the current 2025 tax year through 2028, the proposal would raise the kid Tax Credit to $2,500 per kid; after that, it would return to $2,000 per child.
The 1099-K reporting rule is removed
A contentious law that compelled payment systems like Venmo or Paypal to send 1099-K tax forms to anyone receiving more than $600 would also be repealed by the proposed legislation.
In the past, these payment firms were only required to notify the Internal Revenue Service of their users’ income if they generated more than $20,000 in revenue from more than 200 transactions.
Following opposition from Republican lawmakers and some web platforms, the IRS postponed the implementation of the $600 regulation.
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Raises small businesses’ pass-through deduction
The House version would also raise the small company pass-through deduction, which was implemented by the Tax Cuts and Jobs Act.
By deducting 20% of their eligible company income from their taxes, small firms such as partnerships, sole proprietorships (which frequently employ gig workers), and S corporations can reduce their tax obligations. The deduction would increase to 23% under the new measure.
Removes tip taxes
This comes after Mr. Trump promised during his campaign to do away with tipped income taxes, but only from the current 2025 tax year to 2028.
The House Ways and Means Committee’s bill summary states that the provision would establish “an above-the-line deduction for qualified tips received by an individual in an occupation which traditionally and customarily receives tips during a given taxable year.”
Removes the VAT on overtime compensation
Mr. Trump’s other idea, to remove taxes on overtime compensation for qualified workers, would also be implemented, albeit for a three-year period.
From the current 2025 tax year through 2028, an above-the-line deduction for overtime would be established under the House measure.
Permit interest to be subtracted from auto loans
By enabling consumers to deduct up to $10,000 for interest paid on auto loans, the House measure would also remove taxes on interest.
There would be an income cap on this, and it would phase out for taxpayers who earned more than $100,000 (for single filers) or $200,000 (for married couples).
For vehicles to be eligible for the deduction, they must have been put together in the United States.
Only the current 2025 tax year through 2028 would be eligible for this tax relief.
