Many taxpayers may soon see an increase in their disposable income thanks to a comprehensive tax and spending cuts package that House Republicans are aiming to finalize before Memorial Day. The proposed legislation, which recently received approval from the House Ways and Means Committee, seeks to make permanent nearly all individual income tax breaks established in the GOP’s 2017 Tax Cuts and Jobs Act. Notably, these provisions were initially set to expire after this year, potentially leading to unexpected tax hikes for many.
While most taxpayers currently enjoy these benefits, the potential expiration of these measures could lead to significant tax increases next year, a fact that many might not be aware of. The new proposal also includes temporary tax relief aimed at specific groups, such as parents, senior citizens, and tipped workers. According to the Joint Committee on Taxation, most taxpayers—except those with the lowest incomes—are projected to see a decrease in their average federal income tax rate over the next decade.
For example, households earning between $60,000 and $80,000 could experience a reduction in their average tax rate from 13.1% under current law to 11.4% by 2027. Meanwhile, those with incomes exceeding $1 million would see their tax rate decrease from 31.1% to 28.3%. However, taxpayers earning less than $15,000 might face an increase in their tax rate from 4% to 4.8%, primarily due to the expiration of enhanced premium subsidies under the Affordable Care Act.
It's important to note that the tax provisions in this package could still undergo changes before being voted on by the full House. Additionally, the Senate may introduce further revisions. Beyond the tax cuts, the legislation also includes measures that could negatively impact certain Americans, such as proposed cuts to Medicaid and food stamps, the elimination of consumer tax credits for electric vehicles and energy-efficient appliances, and the restructuring of the federal student loan program.
Here are some key groups that stand to benefit from the newly proposed tax breaks:
Parents are set to receive a larger child tax credit from 2025 through 2028, increasing from $2,000 to $2,500 per child. This benefit will be available to single parents earning up to $200,000 and married couples earning up to $400,000, after which the credit will begin to phase out. However, eligibility will tighten, as parents must now have Social Security numbers, along with their children, to claim this credit.
Lower and middle-income senior citizens will receive an increase of $4,000 to their standard deduction from 2025 through 2028. However, this benefit will gradually phase out for individuals with incomes exceeding $75,000 and for couples earning double that amount. This provision serves as an alternative to President Trump's earlier campaign promise to eliminate taxes on Social Security benefits.
Under the new proposal, certain tipped workers will have the opportunity to deduct the income they receive from tips on their tax returns. This measure fulfills a significant campaign promise made by Trump but will only apply to occupations that traditionally receive tips and will be in effect from 2025 through 2028. However, those with high compensation, earning over $160,000 in 2025, will not be eligible for this deduction.
The proposal also includes a provision that exempts many hourly workers from paying federal income tax on overtime compensation for the next four years. This benefit applies to those who are not considered highly compensated, aligning with another of Trump’s campaign promises.
Taxpayers with auto loans may benefit from a new provision allowing them to deduct up to $10,000 in interest annually from 2025 through 2028. This tax break will begin to phase out for single filers earning more than $100,000 and married couples earning over $200,000. This measure, which is another Trump campaign promise, is specifically targeted at owners of passenger vehicles that were assembled in the United States.
As the discussions on this tax and spending cuts package evolve, taxpayers should stay informed about how these changes could impact their financial situations in the coming years.
