2025 Tax Cut Bill

The House Ways & Means Committee just released a 389-page draft tax bill – the starting point for tax reform and legislation. Without action from Congress this year, we are going to see a huge overhaul next year with the expiration of many provisions in the 2017 Tax Cuts and Jobs Act (TCJA).

What’s in the Bill?

199A

• When the TCJA provided a reduction in the corporate tax rate from 35% to 21%, it also gave small businesses a 20% deduction for Qualified Business Income (QBI)
• For example, if your small business makes $200,000 as a small business owner, you get a 20% deduction on your income, so you are only taxed on $160,000 of income
• This QBI deduction is set to expire in 2026
• The bill not only makes the QBI deduction permanent, but it also increases the deduction to 22%

Individual Federal Income Tax Rates

• The TCJA reduced the Federal Income Tax bracket rates
• For example, each bracket was reduced by 2-3% and the highest bracket rate was reduced from 39.6% to 37%
• The lower bracket rates are set to expire in 2026
• The bill extends the lower bracket rates

Standard Deduction

• The deduction everyone receives if you don’t itemize. The TCJA doubled the standard deduction
• For example, a couple filing jointly with $100,000 of income can take the standard deduction resulting in $70,000 of taxable income.
• The doubled deduction is set to expire in 2026 to ~$16,600
• The bill keep the doubled standard deduction

State And Local Tax (SALT) Deduction

• If you itemize deductions (instead of taking the standard deduction), you can include the total amount of state and local taxes you pay. While this used to be an unlimited amount, the TCJA capped that amount at $10,000
• For example, people in California, New Jersey, or NY, who typically pay very high state income taxes and high property taxes are not able to deduct the full amounts but are limited to $10,000.
• The cap is set to expire in 2026 and would revert to being unlimited
• The bill increases the cap from $10,000 to $30,000

Child Tax Credit

 

• A tax credit (which is a reduction of your tax owed, not a reduction of your taxable income) for having dependent children. The TCJA increased from $1,000 to $2,000
• Set to go back to $1,000 in 2026
• The bill increases it to $2,500 per child

Estate Tax

• When you die, the amount of your estate over your lifetime exemption is taxed at 40%
• The TCJA doubled the exemption from $5 million to $10 million per person in 2018.
• It increases each year with the current year’s exemption just under $14 million
• This doubled exemption is set to revert to ~$7 million in 2026
• For example, if you die in 2026 with $10 million passing to your children, your estate will owe approximately $1.2 million in estate taxes
• The bill will keep the doubled exemption to be ~$15 million in 2026

Tax on Tips & Overtime

• The bill includes a provision that makes tips and overtime pay not taxable
• No cap
• Expires after 2028

What’s next?

1. The bill must get through House Ways & Means committee vote before going to the House floor
2. House Speaker Johnson has said it should be approved and get through the House by Memorial Day before going to the Senate
3. Expected to go through the Senate process for approval in June
4. Once approved by the Senate, the bill will go through Reconciliation to make sure the House and Senate agree
5. Final bill going to the President for signature
6. President Trump and House Republicans are expected the bill to be done by July 4th