How the Tax Bill Could Impact Your Wallet

At the end of February, the House of Representatives passed a budget calling for up to $4.5 trillion in tax cuts over 10 years.

Now, the haggling begins.

Many of the tax cuts from the 2017 tax bill, which passed during President Trump’s first term, are set to expire at the end of this year. He wants them renewed, and Congress has shown little appetite for crossing him.

Extending those provisions would eat up most of that $4.5 trillion, and on the campaign trail, Mr. Trump floated many additional ideas for tax cuts that would cost a lot of money. Few are likely to come to pass.

Still, strange things happen to tax bills in the dead of night. You never know what changes aides could make in the hours before a vote, without much of Congress seeing them.

These are the things to watch for.

Provisions From Previous Bills That Are Set to Expire at the End of 2025

Tax Brackets

The 2017 tax law reset — and lowered — the percentage of income that most people pay in federal income taxes. You can see where you stand currently on the Internal Revenue Service’s website; the Tax Foundation’s website has a 2017 table, which uses dollar figures that are not adjusted for the inflation that has occurred since then.

If no new bill is passed to extend these cuts, the percentages will revert to where they were in 2017, with new income bands in each tax bracket.

Standard deduction

The deduction that all taxpayers are generally eligible for (and actually use, unless they itemize their deductions) nearly doubled in the wake of the 2017 tax law. As a result, fewer people itemized their deductions, which made it simpler to file their returns.

Without any new legislation, the standard deduction would shrink dramatically, though other tax breaks might return to their more generous levels from 2017 and earlier.

‘SALT’ — State and Local Tax Deduction

The 2017 legislation placed a $10,000 cap on the amount of state and local taxes you could deduct on your federal tax return when itemizing your deductions. This posed a big problem for higher-income people in states and local communities with high taxes of their own, since many of those people pay five figures in state income taxes and an additional five figures in property taxes.

Without any change, the cap will expire. One possibility to watch for: a new, higher cap that satisfies members of Congress from both parties whose constituents are not happy with the $10,000 limit.

Child Tax Credit

The 2017 law doubled the child tax credit to $2,000 for each qualifying child for joint filers earning up to $400,000 (and $200,000 for single filers). People with higher incomes may be able to claim a portion of it.

Up to $1,700 of that can be delivered in the form of a refundable credit, which means taxpayers can receive money back even if they have no tax liability. (Taxpayers may also reduce their tax bill by up to $500 for other dependents who are not children.)

Without any action, the credit — as well as the refundable portion — will revert to a maximum of $1,000 per child for joint filers who earn up to $110,000 (or $75,000 for single filers).

Qualified Business Income

The 2017 law created a new system whereby many self-employed people and small-business owners could deduct up to 20 percent of their business income.

Without an extension, this opportunity will disappear. Any extension could include modifications.

Estate Tax Exemption

The federal estate tax exemption sits at $13.99 million. That’s what you can hand over to your heirs (other than your spouse) when you die, without your estate needing to file an estate tax return.

Without an extension, the exemption amount will fall by more than half.

Other Changes

Without any extensions or revisions in the current rules before the end of the year, the amount of mortgage interest you can deduct could rise by up to $250,000, and it could get easier to qualify for deductions for property and theft losses.

Many more people could be able to qualify for deductions related to the costs of moving for work-related reasons, and the dreaded alternative minimum tax might apply to more people.

You might have to pay taxes when converting 529 education savings accounts to so-called Able accounts, and some people would be able to deduct the cost of tax-preparation services again. Meanwhile, employers may lose the ability to cover a certain amount of employees’ student-loan payments (as an employee benefit) without the amount’s being taxable as income.

The Congressional Research Service updated a guide to many of these items in November.

Campaign Declarations and Other Proposals

No Taxes on Social Security Benefits

Roughly 50 percent of Social Security recipients pay at least some income taxes on what they get. It’s enough people to make this campaign pledge so expensive that it would crowd out many other goals.

It probably won’t happen. It may not even be in the early drafts of tax legislation that members of Congress circulate.

No Taxes on Tips

This pledge was popular in Nevada, a swing state full of restaurant and casino workers that Joseph R. Biden Jr. won in 2020 and the party lost in 2024. With the election over, Mr. Trump may now order Congress to make this a priority.

Any such legislation could come with restrictions that would limit the deduction by size, industry and income.

No Taxes on Overtime Pay

Mr. Trump introduced this notion in September. One big question that would loom over this proposal and the one on tips: Would workers also pay nothing toward Social Security or Medicare or just no federal income taxes?

Deduction for Vehicle-Loan Interest

This campaign pledge re-emerged in the president’s speech to Congress this week.

It’s one of Mr. Trump’s least costly proposals, since it applies only to vehicles made in the United States. It could change an economically meaningful number of buyers’ behavior if all shoppers, and not just the fraction of Americans who itemize their deductions, qualify to use it.

A Tax on College Scholarships and Fellowships

A House Ways and Means committee document that lays out various tax legislation possibilities suggests making all scholarship and fellowship income taxable. At present, it’s usually excluded from taxable income if people use it for tuition and related expenses.

On the face of it, that could raise a lot of money and please a president who wants much of the higher education industry dismantled.

But the people who work at those schools are not dumb. They would be quick to re-price their wares, eliminating merit scholarships and other awards that are coupons by another name.

An End to Electric Vehicle Tax Credits

By law, tax credits are available for many people who buy electric (and certain other energy-conserving) vehicles. The amount depends on several factors and is capped at $7,500 per year.

Mr. Trump loves fossil fuels, and Congress could try to appease him by attempting to cancel the credits before the end of 2032, when they are scheduled to sunset.