Latest Updates on Trump’s Tax Plan: What You Need to Know

As President Donald Trump embarks on his second term, his administration is poised to make significant changes to the U.S. tax code. Building on the Tax Cuts and Jobs Act (TCJA) of 2017, which brought sweeping reforms, the new tax plan aims to further reshape the landscape for both individuals and corporations.

Key Proposals and Changes

1. Extension of the TCJA Provisions: Many provisions of the TCJA are set to expire at the end of 2025. The Trump administration is pushing to extend these measures, including the flat corporate tax rate of 21%, increased standard deductions, and the child tax credit. According to Secretary of Treasury, Scott Bessent, “Extending the 2017 Tax Cuts and Jobs Act is the single most important economic issue of the day. If we do not renew an extension, then we will be facing an economic calamity, and as always, with financial instability, that falls on the middle and working class”.
2. Elimination of Income Tax: One of the most ambitious proposals is the potential elimination of income tax for certain brackets. This move is expected to put more money in people’s pockets but could also lead to increased national debt.
3. Repeal of the SALT Cap: The State and Local Tax (SALT) deduction cap has been a contentious issue, particularly for high earners in high-tax states. The Trump administration supports repealing this cap, which could allow more taxpayers to itemize their deductions.
4. New Tax Credits: The plan includes new tax credits for family caregivers and car purchases, aiming to provide financial relief to specific groups.
5. Corporate Tax Rate Reduction: There is a proposal to further reduce the corporate tax rate to as low as 15%, which could stimulate business investment but also raise concerns about the federal deficit. President Trump states, “Reducing the corporate tax rate to 15% will make America the best place in the world to do business. This will lead to more jobs, higher wages, and a stronger economy.”
6. No Tax on Tips, Overtime, and Social Security: In his address to Congress, Trump called for the elimination of taxes on tips, overtime pay, and Social Security benefits. This proposal aims to boost worker earnings and provide financial relief to retirees. Under current IRS rules, tips and overtime pay are considered taxable income, and Social Security benefits can be partially taxable depending on the recipient’s income level.
7. Reciprocal Tariffs: Trump announced the implementation of reciprocal tariffs, which will take effect on April 2, 2025. These tariffs are designed to match the tariffs that other countries impose on U.S. goods. Trump emphasized that this approach aims to correct longstanding imbalances in international trade and ensure fairness for American workers. He stated, “If they charge us, we charge them,” highlighting the simplicity and fairness of this system. President Trump commented, “Reciprocal tariffs are about fairness. If other countries impose tariffs on our goods, we will do the same. This will level the playing field and protect American jobs.”

Key Provisions of the TCJA

1. Lower Individual Tax Rates: The TCJA reduced the top marginal income tax rate from 39.6% to 37% and updated the income tax thresholds across several income tax brackets. If the TCJA provisions expire, the top rate is set to revert to 39.6% in 2026.
2. Increased Standard Deduction: The TCJA nearly doubled the standard deduction to $15,000 for single filers and $30,000 for married couples filing jointly. This change made the standard deduction more attractive to many taxpayers by simplifying tax filing and providing a greater tax benefit.
3. Child Tax Credit: The TCJA increased the child tax credit from $1,000 to $2,000 per qualifying child and raised the income threshold for phase-out to $400,000 for married couples filing jointly. This credit would revert to the pre-TCJA amount of $1,000 in 2026.
4. Qualified Business Income (QBI) Deduction: The TCJA introduced a 20% deduction for pass-through entities such as S Corps, LLCs, and sole proprietors. This deduction reduces taxable income for many small business owners, providing substantial tax relief.
5. Bonus Depreciation: The TCJA allowed businesses to immediately deduct a significant portion of the cost of new equipment and property. This provision aims to encourage capital investment and stimulate economic growth.
6. Estate and Gift Tax Exemption: The TCJA nearly doubled the estate and gift tax exemption limits, providing significant tax relief for high-net-worth individuals. This exemption is set to revert to pre-TCJA levels in 2026.
7. Limitation on Itemized Deductions: The TCJA placed certain limitations on itemized deductions, including the state and local tax (SALT) deduction, mortgage interest deduction, and miscellaneous deductions. These limitations are set to expire in 2026, potentially leading more taxpayers to itemize deductions again.

New Tax Credits for Car Loan Interest

One of the notable new tax credits proposed by President Trump is the tax deduction for interest payments on car loans, but only for vehicles made in the U.S. This proposal aims to stimulate domestic auto production and make car ownership more affordable for American families. By making car loan interest tax-deductible, similar to the mortgage interest deduction, this proposal could reduce the overall cost of car ownership and encourage more Americans to buy domestically produced vehicles.  Some experts argue that the tax deduction for car loan interest may disproportionately benefit higher-income individuals who are more likely to itemize their deductions.

Impact on Individuals

Trump’s tax plan includes several provisions that could significantly impact individuals:

1. Lower Individual Tax Rates: The plan seeks to make the current lower tax rates permanent. This means that individuals will continue to benefit from the reduced rates introduced by the TCJA, with the top rate remaining at 37%.
2. Increased Standard Deduction: The standard deduction is nearly doubled, set at $15,000 for single filers and $30,000 for married couples filing jointly. This change simplifies tax filing and provides a greater tax benefit to families, making it easier to claim deductions without itemizing.
3. Retention of the Child Tax Credit: The proposal retains the existing $2,000 Child Tax Credit. If you have children, this credit can significantly lower your tax bill, providing essential support for family expenses.
4. Elimination of Taxes on Social Security Benefits: This proposal would remove federal taxes on Social Security income, providing additional financial relief for retirees who rely on this income.
5. Tax Exemptions for Tipped Income and Overtime Pay: Eliminating taxes on tipped income and overtime pay could increase take-home pay for workers in industries like hospitality.

Impact on Small Businesses

Trump’s tax plan includes several provisions that could significantly impact small businesses:

1. Qualified Business Income (QBI) Deduction: The extension of the TCJA provisions includes the 20% QBI deduction for pass-through entities such as S Corps, LLCs, and sole proprietors. This deduction reduces taxable income for many small business owners, providing substantial tax relief.
2. Bonus Depreciation: The plan aims to maintain bonus depreciation for capital investments, allowing small businesses to immediately deduct a significant portion of the cost of new equipment and property.
3. Payroll Tax Reductions: Trump has proposed cutting payroll taxes, which could lower the financial burden of hiring and retaining employees for small businesses. This reduction could also increase take-home pay for employees, potentially boosting consumer spending.
4. Research & Development (R&D) Tax Incentives: The plan may expand R&D tax credits, encouraging small businesses to invest in innovation and technology. This could provide cash flow relief and help U.S. businesses remain competitive in global markets.

Budget Reconciliation Process

Congressional Republicans are currently using the budget reconciliation process to enact tax reform without needing to negotiate with or rely on Democrats. This budgetary maneuver restricts the cost of tax reforms based on instructions included in a budget resolution. The House resolution limits a decrease in revenue to $4.5 trillion, which is barely enough to extend the 2017 tax cuts and accommodate the President’s priorities. House members view addressing these priorities as essential, especially after Trump highlighted them in his joint session remarks. However, the lack of specificity in Trump’s proposals provides some flexibility, though the tight margins in the House, intraparty tensions about benefit cuts, and concerns about adding to the deficit pose significant challenges.

Additional Highlights from the March 4, 2025 Address

During his address to Congress on March 4, 2025, President Trump emphasized several key points related to his tax plan and broader economic strategy:

• Tariffs and Trade: Trump reiterated his commitment to tariffs, including new tariffs against Canada, Mexico, and China, which went into effect earlier that day. He acknowledged the potential for short-term disruptions but emphasized the long-term benefits for American industries.
• Government Efficiency: Trump praised the work of the Department of Government Efficiency (DOGE), led by Elon Musk, for identifying significant savings across the executive branch. He highlighted the importance of reducing government waste and improving efficiency.
• Economic Vision: Trump painted an optimistic vision for America’s future, promising to create the highest quality of life and lead humanity into new frontiers, including space exploration.