House GOP Targets Major Tax Overhaul: How It Affects You
Many taxpayers could see even more money in their pockets in coming years under a sweeping tax and spending cuts package that House Republicans hope to finalize before Memorial Day.
The taxation segment of the bill, endorsed by the House Ways and Means Committee on Wednesday, ensures that virtually all of the personal income tax reductions from the Republican-led 2017 Tax Cuts and Jobs Act remain indefinitely. These changes might go unnoticed by most taxpayers because they are benefiting from them now but could face higher taxes next year unless these provisions continue.
The proposal also provides some temporary tax relief for certain individuals, such as parents, senior citizens and tipped workers.
Most taxpayers, aside from those with the lowest incomes, would see their average federal income tax rate decrease over the next decade, according to the Joint Committee on Taxation.
For instance, households earning between $60,000 and $80,000 a year would see their average tax rate fall to 11.4% in 2027 under the proposal, compared to 13.1% under current law. For those earning more than $1 million, their rate would be 28.3%, compared to 31.1%.
But those earning less than $15,000 would see an increase to 4.8%, compared to 4%, likely in large part because of the expiration of the Affordable Care Act’s enhanced premium subsidies.
The package’s tax provisions could still change before they are voted on by the full House, and the Senate could make more revisions.
Additionally, the bill includes various other provisions that might have adverse financial impacts on some Americans. These include reductions in expenditures for programs like Medicaid and food stamps, the removal of tax incentives for purchasing electric cars and energy-efficient devices, as well as changes to how federal student loans are managed.
Here are individuals who could benefit from the suggested extra tax cuts:
Parents:
From 2025 through 2028, parents will receive an increased child tax credit. This benefit would rise to $2,500 per child, compared to the present amount of $2,000, for individual filers making less than $200,000 annually and joint filers with incomes under $400,000, beyond which the credit gradually decreases. However, fewer households would be eligible since both parents must possess Social Security numbers, along with their dependents.
Senior citizens:
Lower and middle-income older Americans would receive a $4,000 increase to their standard deduction from 2025 through 2028. But the benefit would start to phase out for individuals with incomes of more than $75,000 and couples with incomes double that amount. The provision is in lieu of President Donald Trump’s campaign promise to eliminate taxes on Social Security benefits.
Tipped workers:
Certain taxpayers would be able to deduct the income they receive from tips on their tax returns, fulfilling a key Trump campaign promise. But it would only apply to occupations that traditionally receive tips and only be in effect from 2025 through 2028. Those considered highly compensated, who make more than $160,000 in 2025, would not qualify.
Hourly employees:
A large number of hourly employees won’t be required to pay federal income tax on their overtime earnings over the coming four-year period. The same exemption holds true for individuals not classified as highly compensated personnel. This particular clause was among President Trump’s pledges during his election campaign.
Car owners:
A significant number of individuals with car loans could claim an annual deduction of up to $10,000 on interest paid between 2025 and 2028. However, this benefit would gradually decrease for individual taxpayers making over $100,000 and joint filers earning above $200,000. This particular measure, part of Mr. Trump’s election pledges, specifically benefits those who own cars assembled domestically as passenger vehicles.
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