Personal Finance

The potential tax increase coming and what you can do about it

Published

11 months ago

April 15, 2024

Eva-katalin | E+ | Getty Images

It is common folklore, a fairy tale of sorts, that middle-class Americans received perpetual relief in the Tax Cuts and Jobs Act of 2017.

First, property taxes generate 32% of state and local income, and U.S. median single-family home property taxes have risen by more than 25% since 2019. There are also under-the-radar excise taxes imposed on the sale of things like fuel, airline tickets, tires, tobacco and other goods and services that can mitigate some of the savings from many of the federal tax cuts that are temporary and may disappear after 2025.

The devil is usually in the details, and by all accounts he’s been busy.

The provision that reduced the corporate tax rates to 21% is permanent, but the qualified business income deduction enjoyed by many small businesses, as well as the increased standard deduction and favorable tax brackets, will expire unless Congress extends these deliverables.

More from CNBC’s Advisor Council

Capitol Hill might very well grandfather in these tax cuts, although it’s worth noting that doing so would cost $288 billion in 2026 alone, according to the Institute on Taxation and Economic Policy and $2.7 trillion from 2024 to 2033, per the Peter G. Peterson Foundation.

Meanwhile, Uncle Sam already has his own money problems, slated to have 31% of the debt held by the public, or $7.6 trillion, coming due in 2024 at much higher rates. To add context, the United States will spend more on interest payments than it does on the military this year.

Congress will be motivated to etch all the tax cuts in stone, but it would only add fuel to the debt bonfire.

What tax changes may be on the horizon

If a divided Congress fails to make amendments, the old tax brackets will return after years of wage growth — which means more of your income may hit the older and more onerous brackets sooner.

There is also the once-unlimited state and local tax deduction that the legislation capped at $10,000, the personal exemption which was eliminated, the deduction for unreimbursed business expenses, a deduction for moving, interest on a home equity loan, a deduction for uniforms and a deduction for theft and catastrophic damage from an environmental event that are no longer available. It is currently unclear if these provisions will be returned to taxpayers.

There is also the qualified business income deduction that offers a 20% tax break for small businesses provided they are below certain income thresholds. That deduction is set to expire, a concern that has motivated the Chamber of Commerce to lobby on behalf of its constituents. All of this is in addition to crippling cost-of-living challenges from excessive government spending, the well our Treasury would have to revisit to make these tax cuts permanent.

Hope Congress fixes the problem, or look for a solution

The easiest course of action for everyday Americans is to increase contributions to their pretax retirement plans such as a 401(k), which will reduce federal and state tax exposure dollar for dollar. Once distributions are taken, however, they will be subject to regular income taxes at a time when entitlement expenses have accelerated, and the Treasury will have fewer workers paying for more retirees.

A Roth 401(k) plan may protect against future taxes but does little for current exposure and is subject to legislative risk by both the federal and state governments saddled with unfunded liabilities and pension obligations. While political obstacles make this an unlikely outcome, the math may force officials to write legislation that taxes distributions through means testing or another measure that suits their fiscal needs.

Real estate offers some reprieves because you may be able to depreciate the property over its lifetime. For instance, the IRS allows property owners to deduct 3.64% of the original purchase price for 27 years. A property purchased for $500,000, therefore, offers an estimated $18,200 annual deduction to offset any income received.

Interest rates have made real estate much less attractive. But it’s worth noting that upon the owner’s death, whatever the property value is at the time of death becomes the new cost basis — the value used to determine how much the owner can depreciate — and the beneficiaries can begin depreciating all over again at the higher value for another 27 years.

Another option is permanent life insurance. The media and financial literacy pundits have spent years highlighting the high commissions and fees associated with whole and universal life insurance policies.

Upon closer inspection, however, these vehicles offer more than a death benefit with no exposure to income taxes and have a savings component that can grow tax-deferred with the market.

Moreover, the policy owner can borrow money against the savings component of the policy, known as the cash surrender value, pay zero taxes and repay the loan with the death benefit when they pass away. Think of it as a Roth individual retirement account without income or contribution limits that pays a death benefit when you die.

Suffice it to say these solutions are viable for some people, yet each household needs a strategy that fits their own unique situation. As appealing as it may sound to reduce your tax exposure, the first call should be to your tax advisor because if you recall, it was the nuances of this legislation that many of us overlooked — namely the fact that the benefits for some were permanent and for others, temporary — that got us into this hot water in the first place.

— By Ivory Johnson, certified financial planner and the founder of Delancey Wealth Management in Washington, D.C. He is also a member of the CNBC Financial Advisor Council.

Personal Finance

Social Security plans to cut about 7,000 workers. That may affect benefits

Published

9 hours ago

March 3, 2025

Business Finance News

The Social Security Administration office in Brownsville, Texas.

Robert Daemmrich Photography Inc | Corbis Historical | Getty Images

The Social Security Administration plans to shed 7,000 employees as the Trump administration looks for ways to cut federal spending.

The agency on Friday confirmed the figure — which will bring its total staff down to 50,000 from 57,000.

Previous reports that the Social Security Administration planned for a 50% reduction to its headcount are “false,” the agency said.

Nevertheless, the aim of 7,000 job cuts has prompted concerns about the agency’s ability to continue to provide services, particularly benefit payments, to tens of millions of older Americans when its staff is already at a 50-year low.

“It’s going to extend the amount of time that it takes for them to have their claim processed,” said Greg Senden, a paralegal analyst who has worked at the Social Security Administration for 27 years.

“It’s going to extend the amount of time that they have to wait to get benefits,” said Senden, who also helps the American Federation of Government Employees oversee Social Security employees in six central states.

Officials at the White House and the Social Security Administration were not available for comment at press time.

The Social Security Administration on Friday said it anticipates “much of” the staff reductions needed to reach its target will come from resignations, retirement and offers for Voluntary Separation Incentive Payments, or VSIP.

More reductions could come from “reduction-in-force actions that could include abolishment of organizations and positions” or reassignments to other positions, the agency said. Federal agencies must submit their reduction-in-force plans by March 13 to the Office of Personnel Management for approval.

Cuts may affect benefit payments, experts say

Former Social Security Administration Commissioner Martin O’Malley last week told CNBC.com that the continuity of benefit payments could be at risk for the first time in the program’s history.

“Ultimately, you’re going to see the system collapse and an interruption of benefits,” O’Malley said. “I believe you will see that within the next 30 to 90 days.”

Other experts say the changes could affect benefits, though it remains to be seen exactly how.

“It’s unclear to me whether the staff cuts are more likely to result in an interruption of benefits, or an increase in improper payments,” said Charles Blahous, senior research strategist at the Mercatus Center at George Mason University and a former public trustee for Social Security and Medicare.

Improper payments happen when the agency either overpays or underpays benefits due to inaccurate information.

Top Social Security official exits after refusing DOGE access to sensitive data

With fewer staff, the Social Security Administration will have to choose between making sure all claims are processed, which may lead to more improper payments, or avoiding those errors, which could lead to processing delays, Blahous said.

Disability benefits, which require more agency staff attention both to process initial claims and to continue to verify beneficiaries are eligible, may be more susceptible to errors compared to retirement benefits, he added.

Cuts may have minimal impact on trust funds

Under the Trump administration, Social Security also plans to consolidate its geographic footprint to four regions down from 10 regional offices, the agency said on Friday.

Ultimately, it remains to be seen how much savings the overall reforms will generate.

The Social Security Administration’s funding for administrative costs comes out of its trust funds, which are also used to pay benefits. Based on current projections, the trust funds will be depleted in the next decade and Social Security will not be able to pay full benefits at that time, unless Congress acts sooner.

The efforts to cut costs at the Social Security Administration would likely only help the trust fund solvency “in some miniscule way,” said Andrew Biggs, senior fellow at the American Enterprise Institute and former principal deputy commissioner of the Social Security Administration.

What President Donald Trump is likely looking to do broadly is reset the baseline on government spending and employment, he said.

“I’m not disagreeing with the idea that the agency could be more efficient,” Biggs said. “I just wonder whether you can come up with that by cutting the positions first and figuring out how to have the efficiencies later.”

Personal Finance

Student loan borrowers pursuing PSLF are ‘panicking.’ Here’s what to know

Published

10 hours ago

March 3, 2025

Business Finance News

Students walk through the University of Texas at Austin on February 22, 2024 in Austin, Texas.

Brandon Bell | Getty Images

As the Trump administration overhauls the student loan system, many borrowers pursuing the Public Service Loan Forgiveness program are worried about its future.

“There’s a lot of panicking by PSLF borrowers due to the uncertainty,” said higher education expert Mark Kantrowitz.

PSLF, which President George W. Bush signed into law in 2007, allows certain not-for-profit and government employees to have their federal student loans canceled after 10 years of payments.

Here’s what borrowers in the program need to know about recent changes affecting the program.

IDR repayment plan applications down

Some borrowers’ PSLF progress has stalled

While the legal challenges against SAVE were playing out, the Biden administration paused the payments for enrollees through a forbearance, as well as the accrual of any interest.

Unlike the payment pause during the pandemic, borrowers in this forbearance aren’t getting credit toward their required 120 payments for loan forgiveness under PSLF. It’s unclear when the forbearance will end.

But while the applications for other IDR plans remain unavailable, borrowers in SAVE are stuck on their timeline toward loan forgiveness, Kantrowitz said. If you were on an IDR plan other than SAVE, you will continue to get credit during this period if you’re making payments and working in eligible employment.

The Education Department is now tweaking the applications to make sure all their repayment plans comply with the new court order, an agency spokesperson told CNBC last week.

It will likely be months before the Department has reworked all the applications and made them available again, Kantrowitz said.

Those who switch to the Standard plan will continue to get PSLF credit, but the payments are often too high for those working in the public sector or for a nonprofit to afford, experts said.

‘Buy back’ opportunity can help

While it’s frustrating not to be inching toward loan forgiveness for the time being, an option down the road may help, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

The Education Department’s Buyback opportunity lets people pay for certain months that didn’t count, if doing so brings them up to 120 qualifying payments.

For example, time spent in forbearances or deferments that suspended your progress can essentially be cashed in for qualifying payments.

The extra payment must total at least as much as what you have paid monthly under an IDR plan, according to Studentaid.gov.

Borrowers who’ve now been pursuing PSLF for 10 years or more should put in their buyback request sooner than later, Kantrowitz said.

“The benefit is likely to be eliminated by the Trump administration,” he said.

Keep records

Borrowers have already long complained of inaccurate payment counts under the PSLF program. While the student loan repayment options are tweaked, people could see more errors, Kantrowitz said.

“A borrower’s payment history and other student loan details are more likely to get corrupted during a transition,” he said.

As a result, he said, those pursuing PSLF should print out a copy of their payment history on StudentAid.gov.

“It would also be a good idea to create a spreadsheet showing all of the qualifying payments so they have their own count,” Kantrowitz said.

With the PSLF help tool, borrowers can search for a list of qualifying employers and access the employer certification form. Try to fill out this form at least once a year, Kantrowitz added.

Personal Finance

Treasury Department halts enforcement of BOI reporting for businesses

Published

14 hours ago

March 3, 2025

Business Finance News

The US Treasury building in Washington, DC, US, on Monday, Jan. 27, 2025.

Stefani Reynolds | Bloomberg | Getty Images

The U.S. Department of the Treasury on Sunday announced it won’t enforce the penalties or fines associated with the Biden-era “beneficial ownership information,” or BOI, reporting requirements for millions of domestic businesses.

Enacted via the Corporate Transparency Act in 2021 to fight illicit finance and shell company formation, BOI reporting requires small businesses to identify who directly or indirectly owns or controls the company to the Treasury’s Financial Crimes Enforcement Network, known as FinCEN.

After previous court delays, the Treasury in late February set a March 21 deadline to comply or risk civil penalties of up to $591 a day, adjusted for inflation, or criminal fines of up to $10,000 and up to two years in prison. The reporting requirements could apply to roughly 32.6 million businesses, according to federal estimates.

The rule was enacted to “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures,” according to FinCEN.

In addition to not enforcing BOI penalties and fines, the Treasury said it would issue a proposed regulation to apply the rule to foreign reporting companies only.

President Donald Trump praised the news in a Truth Social post on Sunday night, describing the reporting rule as “outrageous and invasive” and “an absolute disaster” for small businesses.

Other experts say the Treasury’s decision could have ramifications for national security.

“This decision threatens to make the United States a magnet for foreign criminals, from drug cartels to fraudsters to terrorist organizations,” Scott Greytak, director of advocacy for anticorruption organization Transparency International U.S., said in a statement.

Greg Iacurci contributed to this reporting.