What’s Staying the Same Under the New Law
Income Tax Brackets Made Permanent: The tax rates passed in 2017, which lowered most income brackets and compressed the top rate from 39.6% to 37%, are now permanent. These rates were originally scheduled to expire after December 31, 2025.
Standard Deduction Remains High: The substantially higher standard deduction — now $15,750 for single filers and $31,500 for married couples filing jointly (2025) — will not revert to pre-2017 levels.
Pass-Through Business Deduction Continues: The 20% deduction for qualified business income from LLCs, S-Corps, and sole proprietors is not only preserved but increased to 23%, with a more gradual phase-out for high earners.
Estate and Gift Tax Exemption Locked In: The exemption, set at $13.99 million per individual in 2025, rises to $15 million next year and is now locked in for future years — avoiding the 2026 reversion to a much lower amount.
What’s Changing Under the New Law
Temporary Boost to the Standard Deduction: From 2025 through 2028, taxpayers can claim an extra $1,000 (single), $1,500 (head of household), or $2,000 (married filing jointly) on top of the standard deduction.
No Tax on Tips or Overtime: Workers earning tips or overtime pay can now deduct up to $25,000 of that income from federal taxes annually. This deduction phases out for individuals earning over $150,000 and couples over $300,000, and it sunsets after 2028.
Child Tax Credit Increased: The credit rises to $2,200 per qualifying child, and starting in 2026, it will adjust annually with inflation. (Without this change, it would have dropped to $1,000.)
Additional Deduction for Seniors: Between 2025 and 2028, taxpayers age 65+ with modified AGI under $75,000 (or $150,000 if married filing jointly) qualify for an additional $6,000 deduction.
Auto Loan Interest Deduction Introduced: Interest on qualifying auto loans for vehicles assembled in the US can now be deducted — up to $10,000. The deduction is available to individual taxpayers who have a modified adjusted gross income no greater than $100,000 ($200,000 for married couples filing jointly), and the deduction ends after 2028.
SALT Deduction: A Key Issue for High-Tax States
Temporary SALT Cap Expansion: The $10,000 cap on state and local tax deductions (SALT) has been raised to $40,000 (adjusted by 1% annually) starting in 2026 — but only until 2029 where it will revert back to $10,000 permanently.
Who Benefits Most: Households in high-tax states like Washington, California, New York, and New Jersey — especially upper-middle-class homeowners — could see a meaningful increase in deductions during that window.
Other Provisions Now in Effect
Work Requirements for Medicaid: Adults without disabilities must now work at least 80 hours per month to remain eligible for benefits, with exceptions for seniors and parents of young children.
Debt Ceiling Increase Enacted: The bill raises the federal debt ceiling by $5 trillion, giving the government extended borrowing authority.
Clean Energy Credits Rolled Back: Several clean energy incentives — including those for EVs and solar — are being phased out more quickly.
529 Plan and HSA Flexibility Expanded: 529 plans now cover up to $20,000 annually in K–12 tuition and include a broader range of qualified expenses like tutoring, test fees, and educational therapies. The new law also makes first-dollar telehealth coverage permanently compatible with HSA plans, broadens HSA eligibility to include all Bronze and Catastrophic Exchange plans, and allows tax-free use of HSAs for direct primary care services beginning in 2026.
Introduction of New Trump Savings Accounts: A new pilot program provides a $1,000 government-funded investment account at birth for children born through 2028, with families able to contribute up to $5,000 per year. Accounts grow tax-deferred, convert to IRAs at age 18, and can also receive employer or nonprofit contributions.
The Bottom Line: Planning Matters More Than Ever
Most of the new tax policies are not taking effect until January 1, 2026, but tax policy is shifting – and we will cover this year and next during tax planning season this fall with our clients.
Review your projected income for 2025 and beyond, re-evaluate your deduction opportunities, and take a closer look at how these changes may affect your family, your business, or your retirement planning.
Even with some provisions temporary, the risk of higher taxes in the future hasn’t disappeared. Proactive planning today could help you make the most of what’s now available. If you have any questions about what has been outlined above, please reach out!
