Trump’s 2017 tax cut extensions

Trump’s new legislation makes permanent the 2017 tax cuts while increasing these tax breaks:

• Standard deduction: Up from $15,000 to $15,750 (single) and $30,000 to $31,500 (married filing jointly) in 2025. Indexed for inflation.

• Estate and gift tax exemption: Up from $13.99 to $15 million (single) and $27.98 to $30 million (married filing jointly) in 2026. Indexed for inflation.

• Child tax credit: Up from $2,000 to $2,200 per child and $1,700 is refundable in 2025 (more below). Indexed for inflation.

• State and local tax deduction (SALT) limit: Up from $10,000 to $40,000 in 2025, with 1% increases through 2029. Reverts to $10,000 in 2030 (more below).

— Kate Dore

When you itemize tax breaks, the state and local tax deduction, known as SALT, provides a federal deduction for state and local income taxes and property taxes.  

Trump’s 2017 tax cuts added a $10,000 SALT deduction cap, which has been a critical issue for certain lawmakers in high-tax states such as New York, New Jersey and California.

The SALT deduction was unlimited before 2018. But the alternative minimum tax reduced the benefit for some wealthier Americans.

The new legislation temporarily lifts the SALT cap to $40,000 starting in 2025. That benefit begins to phase out, or decrease, for consumers with more than $500,000 of income.

Both figures would increase by 1% yearly through 2029, and the $40,000 limit would revert to $10,000 in 2030. 

In 2022, the average SALT deduction was close to $10,000 in states like Connecticut, New York, New Jersey, California and Massachusetts, according to a Bipartisan Policy Center analysis with the latest IRS data. Those high averages indicate “that a large portion of taxpayers claiming the deduction bumped up against the $10,000 cap,” researchers wrote.

Meanwhile, the states and district with the highest share of SALT deduction claimants were Washington, D.C., Maryland, California, Utah and Virginia, the analysis found.

“If you raise the cap, the people who benefit the most are going to be upper middle-income,” since lower earners typically don’t itemize tax deductions, Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, previously told CNBC.

The legislation also preserves a SALT cap workaround for pass-through businesses, which allows owners to avoid the $10,000 SALT limit.

— Kate Dore

The child tax credit is for families who have qualifying children under age 17 with a valid Social Security number.

Trump’s 2017 tax cuts temporarily boosted the maximum child tax credit to $2,000 from $1,000, an increase that would have sunset after 2025 without an extension from Congress.

The legislation permanently bumps the biggest credit to $2,200 starting in 2025 and indexes this figure for inflation starting in 2026.

The higher refundable portion of the child tax credit will also become permanent and adjust for inflation. That part, known as the additional child tax credit, is worth up to $1,700 for 2025.

However, it won’t help 17 million children from low-income families who don’t earn enough to claim the full credit, according to Elaine Maag, senior fellow in the Urban-Brookings Tax Policy Center. 

— Kate Dore

Older Americans may receive an extra tax deduction under the legislation, which includes a temporary enhanced deduction for Americans ages 65 and over — dubbed a “bonus.”

The full $6,000 deduction would be available to individuals with up to $75,000 in modified adjusted gross income, and $150,000 if married and filing jointly. It phases out for taxpayers who are above those thresholds.

The temporary senior deduction would be in place for tax years 2025 through 2028.

Ultimately, middle-income taxpayers may benefit most from the enhanced deduction, Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, recently told CNBC.

The senior bonus is in lieu of eliminating taxes on Social Security benefits, which had been touted by the Trump administration, since changes to Social Security are generally prohibited in reconciliation legislation. 

The senior “bonus” may indirectly help defray taxes on Social Security benefits that older taxpayers face. However, that may advance the depletion of the trust funds the program relies on to pay retirement benefits, to late 2032 from early 2033, estimates the Committee for a Responsible Federal Budget.

— Lorie Konish

As Republicans seek to slash federal spending, Medicaid, which provides health coverage for more than 71 million people, has been a target for those cuts.

The legislation cuts about $1 trillion from Medicaid, according to Congressional Budget Office estimates.

New federal work rules would require beneficiaries ages 19 to 64 who apply for coverage or who are enrolled through an Affordable Care Act expansion group to work at least 80 hours per month. Those start Dec. 31, 2026 for most states.

Adults may be exempt if they have dependent children or other qualifying circumstances such as a medical condition; however, the legislation limits exemptions for parents to those with dependent children ages 14 and under. 

Medicaid changes would also require states to conduct eligibility redeterminations for coverage every six months, rather than every 12 months based on current policy. 

The legislation also limits states’ ability to raise provider taxes, which may contribute to Medicaid coverage losses.

About 7.8 million people could become uninsured by 2034 due to Medicaid cuts, the CBO projected based on an earlier version of the legislation.

— Lorie Konish

Reduced food stamp benefits

The legislation enacts cuts to food assistance through the Supplemental Nutrition Assistance Program, or SNAP, formerly known as food stamps.

The cuts may ultimately affect more than 40 million people, according to the Center on Budget and Policy Priorities. That includes about 16 million children, 8 million seniors and 4 million non-elderly adults with disabilities, among others, according to CBPP, a nonpartisan research and policy institute.

Many states would be required to pay a percentage for food benefits to make up for the federal funding cuts. If they cannot make up for the funding losses, that could result in cuts to SNAP benefits or states opting out of the program altogether, according to CBPP. 

The legislation expands existing work requirements to include adults ages 55 to 64 and parents with children 14 and over. Based on current rules, most individuals cannot receive benefits for more than three months out of every three years unless they work at least 20 hours per week or qualify for an exemption.

Eligibility for food stamp benefits would also be limited to U.S. citizens and lawful permanent residents.

An estimated 5.3 million families would lose at least $25 in SNAP benefits per month as a result of the legislation’s changes, according to the Urban Institute. On average, those families would lose $146 per month. 

— Lorie Konish

‘Trump accounts’ for child savings

The legislation includes a new savings account for children with a one-time deposit of $1,000 from the federal government for those born in 2025 through 2028.

So-called “Trump accounts,” a type of tax-advantaged savings account, would be available to all children who are U.S. citizens. 

Parents would then be able to contribute up to $5,000 a year and the balance will be invested in a diversified fund that tracks a U.S. stock index. Employers could also contribute up to $2,500 to an employee’s account and it wouldn’t be counted as income to the recipient.

Earnings grow tax-deferred, and qualified withdrawals are taxed as long-term capital gains.

Republican lawmakers have said these accounts will introduce more Americans to wealth-building opportunities and the benefits of compound growth. But some experts say a 529 college savings plan is a better alternative because of the higher contribution limits and tax advantages.

— Jessica Dickler

Lower federal student loan limits, fewer benefits

• Caps unsubsidized student loans at $20,500 per year and $100,000 lifetime, for graduate students;
• Caps borrowing for professional degrees, such as those for doctors and lawyers, at $50,000 per year and $200,000 lifetime;
• Adds a lifetime borrowing limit for all federal student loans of $257,500;
• Caps parent borrowing through the federal Parent PLUS loan program at $20,000 per year per student and $65,000 lifetime;
• Eliminates grad PLUS loans. These allow grad students to borrow up to their entire cost of attendance minus any federal aid.

Starting in mid-2026, there will be just two repayment plan choices for new federal student loan borrowers: They could enroll in either a standard repayment plan with fixed payments or an income-based repayment plan known as the Repayment Assistance Plan, or RAP.

The legislation also eliminates the unemployment deferment and economic hardship deferment, both of which student loan borrowers use to pause their payments during periods of financial difficulty.

— Jessica Dickler and Annie Nova

Car loan interest deduction

The legislation creates a tax deduction for car loan interest. 

Certain households would be able to deduct up to $10,000 of annual interest on new auto loans from their taxable income. The tax break would be temporary, lasting from 2025 through 2028. 

There are some eligibility restrictions. For example, the deduction’s value would start to fall for individuals whose annual income exceeds $100,000; the threshold is $200,000 for married couples filing a joint tax return. Cars must also be assembled in the U.S. 

In practice, the tax benefit is likely to be relatively small, experts said. 

“The math basically says you’re talking about [financial] benefit of $500 or less in year one,” based on the average new loan, Jonathan Smoke, chief economist at Cox Automotive, an auto market research firm, recently told CNBC.

— Greg Iacurci 

The legislation creates a temporary federal income tax deduction of up to $25,000 per year on qualified tip income. 

The tax break would apply to workers who typically receive cash tips reported to their employer for payroll tax withholdings. It does not apply to taxpayers whose income exceeds $150,000, or $300,000 for joint filers.

The temporary deduction for tip income would be in place for tax years 2025 through 2028.

The Secretary of the Treasury will publish a list of occupations that typically received tips on or before Dec. 31, 2024. 

— Ana Teresa Solá

The legislation also provides a temporary tax break for overtime pay, which Trump called for during the campaign. 

It offers a maximum $12,500 above-the-line deduction for overtime pay, and $25,000 for married couples filing jointly, from 2025 to 2028. The tax break begins to phase out once earnings exceed $150,000, and $300,000 for joint filers. 

— Kate Dore

EV, clean energy tax credits 

The legislation ends several consumer tax credits tied to clean energy. 

It ends a $7,500 tax credit for households that buy or lease a new electric vehicle, and a $4,000 tax credit for buyers of used EVs. These tax credits would disappear after Sept. 30, 2025.

Additionally, it would scrap tax breaks for consumers who make their homes more energy-efficient, perhaps by installing rooftop solar, electric heat pumps, or efficient windows and doors. These credits would end after Dec. 31, 2025.

Many tax breaks on the chopping block were created, extended or enhanced by the Inflation Reduction Act, a 2022 law signed by former President Joe Biden that provided a historic U.S. investment to fight climate change.

The tax breaks were slated to be in effect for another seven or so years, through at least 2032. 

— Greg Iacurci

Credit for private school scholarships

States and districts can choose whether to adopt the program, which experts say could tee up battles over school choice. Currently, 30 states and Washington, D.C., have at least one private school choice program, according to an Education Week analysis.

Among other qualifiers, the scholarship-granting institution must fund awards for eligible students within the state. Students with family income not more than 300% of their area’s median gross income would be eligible for the scholarships.

— Stephanie Dhue

Section 199A pass-through business deduction

Another key provision in the legislation offers a bigger deduction for so-called pass-through businesses, which includes contractors, freelancers and gig economy workers.  

Enacted via Trump’s 2017 tax cuts, the Section 199A deduction for qualified business income will become permanent and remain at up to 20% of eligible revenue, with some limits.

It was set to expire after 2025, but the new legislation makes the deduction permanent. 

— Kate Dore

The core of the reconciliation package involves tax changes, so it’s worth a quick recap of key tax terms to help you understand how the measures work and what they mean for your money:

Deduction: A tax deduction reduces the amount of your income that’s subject to tax, i.e., your taxable income. (You can find your taxable income on line 15 of Form 1040 for 2024.) So if you claim a $1,000 deduction, it can subtract $1,000 of income from tax. How much money that saves you depends on your tax bracket. The higher your bracket, the more a deduction can be worth: In that $1,000 deduction example, someone in the 24% bracket might save $240, while someone in the 12% bracket could save $120.

• Above-the-line deduction: A deduction that you can claim regardless of whether you claim the standard deduction or itemize.

• Itemized deduction: When you file your taxes, you have the option to either claim the standard deduction, or detail a list of eligible deductions, i.e., itemize. Taxpayers choose to itemize when the deductions they are eligible for add up to more than the standard deduction. Some deductions are only available to taxpayers who itemize.

Credit: A tax credit reduces your tax liability dollar-for-dollar. So if you claim a $1,000 credit, it can reduce your tax bill by $1,000. Credits have the same dollar value regardless of your tax bracket. They can be especially valuable for low- and middle-income households.

• Refundable credit: This term means that a credit can reduce your tax bill below zero, meaning you would get a tax refund for some or all of a credit’s value. Some credits are partially refundable, which limits the size of that refund. Others are nonrefundable, meaning that they can reduce your tax bill to zero, but no lower. Credits that are nonrefundable or only partially refundable may prevent those with low income from getting the full value because they earn too little and don’t owe taxes.

Phaseout: The income level at which a tax break begins to become less valuable. Deductions and credits may have formulas that set a rate of reduction and/or a hard limit, above which the taxpayer is not eligible to claim that tax break.