This will be a big year for taxes in Congress, and the outcome could make a significant difference in your finances.
President-elect Trump campaigned on lowering taxes, but the major issue Congress faces is how to prevent taxes from rising at the end of 2025, when many individual income tax changes from the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire.
If Congress doesn’t take action to extend the law beyond 2025, most people will have to pay higher taxes starting in 2026.
“That would represent a pretty sizable tax increase — 62% of tax filers would see a tax increase if the law were to expire as scheduled,” says Garrett Watson, director of policy analysis at the Tax Foundation. “We expect that means there will be a lot of motivation in Congress and the White House to address that to prevent that looming tax increase.”
Congress may also face pressure to add some new breaks that were proposed on the campaign trail, such as eliminating taxes on tips, overtime pay and Social Security benefits; making car loan interest tax-deductible; and eliminating the $10,000 cap on deducting state and local taxes. But these tax changes are expensive, especially when added to the cost of extending the TCJA.
“Everything has a cost associated to it,” says Melanie Lauridsen, vice president of tax policy and advocacy for the American Institute of CPAs. “It’s going to be a fascinating year for taxes.”
Here are the tax issues that experts are watching in 2025, and what the potential changes may mean to you.
Preventing a Tax Increase Before 2026
The TCJA made major changes to individual income taxes for 2018 through 2025, including reducing tax rates at almost all income levels, expanding the income levels within most tax brackets, nearly doubling the standard deduction and increasing the child tax credit, among others.
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The law also made some changes to itemized deductions, such as imposing a $10,000 cap on deducting state and local taxes. Some business-related changes had a big impact on high earners, but many of the changes affected taxpayers of all income levels.
“The higher standard deduction, lower tax brackets and child tax credits makes the law more broadly based, and the majority of Americans would see a tax increase if it is allowed to expire,” Watson says.
Extending the TCJA would lower taxes by an average of about $2,000 per household in 2026, according to the Urban-Brookings Tax Policy Center. High-income taxpayers will see the biggest changes, but “in the more middle of the income distribution it’s about $1,000,” says Joseph Rosenberg, senior fellow at the Tax Policy Center.
“At a time when households are feeling pinched, even $500 or $1,000 over the course of the year is significant. It should be interesting to see how much the threat of those tax increases really hit especially if it drags on toward December,” he adds.
With Republicans controlling the House and the Senate, extending the TCJA will be a priority. But the details will depend on how they decide to deal with the costs. Extending the individual income tax provisions could increase the national debt by more than $3.7 trillion over the next 10 years, according to the Congressional Budget Office.
“Congress will look for offsets to reduce the cost, either other revenues they could raise or spending they could reduce as part of their tax package to offset some of that cost,” Rosenberg says.
Another option would be to extend the TCJA for two to four years, rather than permanently, but then they’d have to address the issue again in a few years, says Kimberly Clausing, the Eric M. Zolt chair in tax law and policy at the UCLA School of Law.
Adding Benefits to the Tax Cuts and Jobs Act
Because of the tight margins in Congress, some lawmakers may have more negotiating power to add extra benefits to the TCJA.
For example, one of the TCJA changes that increased rather than decreased taxes for some people — and helped offset the costs — was a $10,000 cap on deducting state and local taxes (SALT taxes), which people in high-tax states would like to eliminate or change.
“Republicans, especially in the House, don’t have a very large majority, which means that any pair of Republican lawmakers could stand up and say my favorite provision or the provision that I’m concerned with is not properly addressed here, and the big issue right now we know about is the SALT provision,” says Kyle Pomerleau, senior fellow with the American Enterprise Institute.
“Extending the TCJA means extending the $10,000 cap on the SALT that was passed originally in 2017, and there are a lot of Republicans in California and New York whose constituents have said this cap hits us hard,” he adds.
“There’s going to be political pressure to get the votes of those Republicans to make changes among the SALT, which is where things get complicated. If you just lift the cap, you’re adding hundreds of billions of dollars [to the cost], so you’ll have to find somewhere else to offset that,” he says.
Another option would be to increase the SALT cap — for example, from $10,000 to $20,000 — rather than eliminating it entirely, says Lauridsen.
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New Tax Cut Proposals
Even though extending the TCJA will be the big issue, Congress may also be interested in adding some new tax cuts that were proposed during the campaign.
“In some sense, because extending the existing tax cuts is maintaining the status quo, I think there will be a desire on the part of the Trump administration to go above and beyond that to fulfill some of those campaign promises,” Rosenberg says.
Those proposals include exempting tips, overtime pay and Social Security benefits from taxes and a new deduction for auto loan interest. “All of that could be costly depending on how it’s designed,” Watson says.
For example, a Tax Policy Center study found that exempting tips from income tax would reduce federal revenue by $6.5 billion in 2025. If the benefit were limited to people making $75,000 or less, then the revenue loss would be $3.2 billion.
In that case, about 46% of households with tipped workers would benefit, with an average tax cut of about $1,150. Lower-income taxpayers would receive smaller benefits — averaging about $450 for households making $32,800 or less — because their tax rates are lower.
“Tips don’t affect all that many people, but maybe the cost can be done in a way they can make it work,” Rosenberg says. “Exempting tips would require writing the rules in such a way that prevents people from just relabeling their incomes as tipped incomes and avoiding taxes on them.”
What to Do About Enhanced ACA Premium Tax Credits
Also set to expire at the end of 2025 are the enhanced premium tax credits for health insurance purchased on the Affordable Care Act (ACA) marketplaces.
People who buy individual health insurance at HealthCare.gov or in their state health insurance marketplace can receive premium tax credits to help reduce their costs. The size of the tax credit, which is received in advance as essentially a premium discount, is based on their income.
These subsidies were expanded significantly in 2021 as part of the American Rescue Plan Act and extended through 2025 by the Inflation Reduction Act, increasing the size of the subsidy and eliminating an income cap to qualify.
More than 90% of people who bought coverage on the ACA marketplace in 2024 received premium tax credits, according to Matthew McGough, policy analyst for the program on the ACA at KFF, a nonprofit health policy research, polling and news organization.
“The number of people who receive some subsidy has more than doubled since the beginning of the pandemic in 2020,” he says. Enhanced subsidies have reduced premium payments by an estimated $705 per year for those receiving the tax credits, according to KFF.
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“The impact will vary based on a number of factors — mainly age, income, location and specific plan,” McGough says. “We expect the groups that would be most impacted would likely be older people and low-income people.”
Insurers in most states charge people in their 50s and early 60s the highest premiums for Marketplace policies, and the enhanced subsidies were expanded significantly for people at the lowest income levels — whose costs could rise the most if not extended.
“We could potentially see the premium contribution for some low-income people increase by five times,” McGough says.
The enhanced subsidies also eliminated the income cap to qualify — previously, people earning more than 400% of the federal poverty were not eligible for the financial assistance.
If not extended past 2025, the subsidies will disappear entirely for those who earn more than that level, which is currently $81,760 for a couple and $124,800 for a family of four.
“If you make a dollar above the 400% federal poverty level, there is a subsidy cliff — those people will no longer receive any assistance whatsoever,” McGough says.
If the enhanced premium tax credits expire, some of the healthier people may decide not to get marketplace coverage, leaving insurers to cover a sicker pool of people, McGough says.
Even though these subsidies affect a much smaller group of people than the extension of the TCJA, if the enhanced subsidies expire those people could effectively face a tax increase.
“There’s going to be pressure to keep them around because Republicans don’t want to deal with the backlash of raising taxes,” Pomerleau, of the American Enterprise Institute, says. “If they’re also doing changes with the TCJA, it may be less noticeable.”
To estimate how much premiums could increase if the enhanced subsidies are not extended beyond 2025, see KFF’s enhanced subsidy calculator.
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