The Trump administration recently released its tax and spending bill, titled "The One, Big, Beautiful Bill."
Of course, the most significant part of the tax plan is to make the tax cuts enacted during Trump's first term permanent. These provisions, such as the higher standard deduction and generally lower marginal tax rates, went into effect in 2018 thanks to the Tax Cuts and Jobs Act (TCJA) but were set to expire after 2025.
However, the new tax bill does much more than simply extend the existing tax cuts. In fact, according to the House Ways and Means Committee, the average taxpayer would see a $1,300 tax reduction as a result of the changes the legislation contains. With that in mind, while this isn't meant to be an exhaustive list, here are some of the most significant changes the Trump administration is proposing.
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1. Expansion of the Child Tax Credit
The child tax credit is currently worth a maximum of $2,000 per qualifying child, a provision which the new bill would make permanent. In addition, the child tax credit would be temporarily increased by $500, to a maximum of $2,500 per child, from 2025 through the 2028 tax years.
What's more, after 2028 the child tax credit would be adjusted over time for inflation. In other words, if the credit starts at $2,000 and we get 5% inflation, it will presumably adjust to $2,100.
2. No tax on tips
One of President Trump's biggest tax-related campaign promises was "no tax on tips." And that is in the new tax proposal, at least on a temporary basis.
Specifically, the new proposal makes tip income tax-deductible for the 2025-2028 tax years. Individuals must be in a traditionally tipped industry, such as the restaurant industry, to qualify.
3. The SALT deduction could expand
One of the biggest criticisms of the TCJA was that it severely restricted the deduction for state and local taxes, also known as the SALT deduction.
Before the 2018 tax year, taxpayers could deduct all the taxes they paid to state and local governments, including income taxes, property taxes, and more. The TCJA limited this to $10,000, and critics claim that this disproportionately hurt residents of higher-tax states.
The new legislation as it is currently written would expand the SALT deduction to a maximum of $30,000. It would gradually phase down to the current $10,000 level for taxpayers who earn more than $200,000 (single filers) or $400,000 (married filing jointly).
4. Temporarily higher standard deductions
The TCJA roughly doubled the standard deductions while eliminating the personal exemption. In addition to making these changes permanent, the new tax plan would temporarily increase the standard deduction from 2025 through 2028 by:
- $2,000 for joint filers.
- $1,500 for heads of household.
- $1,000 for all other filers.
For senior citizens, the standard deduction would increase by an additional $4,000 for those years, but the larger deduction starts to phase out above certain income thresholds.
The final bill could look different
As of this writing, the bill is making its way through Congress. It was moved ahead by the House Ways and Means committee and is a long way from the finish line. Plus, the bill would increase the budget deficit by $3.3 trillion over the next decade, according to the nonpartisan Tax Foundation, and this isn't a popular outcome among some lawmakers.
The bottom line is that the final form of the "One Big Beautiful Bill" could be significantly different than its current form. So none of these changes are set in stone just yet.
