The tax bill passed by the House of Representatives on May 22 includes some big changes for families.
It increases the child tax credit, introduces a new tax-deferred account with government contributions for new babies, expands eligible expenses for health savings accounts and proposes a tax break for interest on certain car loans.
It would also make a variety of changes affecting education-related expenses — expanding the use of tax-free 529 accounts, but adding new restrictions on student loan repayment programs.
The Senate will debate the tax bill next, and there will likely be additional changes before the law is finalized.
“I have been in practice for 61 years, and during that time, I can’t recall a single case where a significant tax bill first passed by one of the houses of Congress and was ultimately passed intact,” says Mitchell Freedman, a certified public accountant in Westlake Village, California. “I caution taxpayers not to bet on what the final bill will look like.”
However, knowing what’s in the bill can help you prepare for what may be coming. Keep reading to find out.
Increasing the Child Tax Credit
The tax bill would increase the child tax credit from $2,000 up to $2,500 per eligible child for 2025 through 2028. The size of the credit will fall to $2,200 in 2029 and be adjusted for inflation each year, says Kyle Pomerleau, a senior fellow at the American Enterprise Institute focusing on federal tax policy.
Families can currently receive this credit for each dependent child under the age of 17 by the end of the year. The size of the credit starts to phase out if your annual income is more than $200,000 (or $400,000 for joint filers).
This increase may not help some low-income families. The child tax credit is only partially refundable — currently up to $1,700 in 2025, which means you can receive up to $1,700 in a refund if the credit is more than the taxes owed. Families without enough taxable income will not benefit from the expanded credit.
“The biggest benefits would go to households with enough earned income and tax liability to get a benefit from the amount exceeding $2,000,” says Garrett Watson, director of policy analysis for the Tax Foundation. “It will have less or no benefit for lower earners who max out on the amount of the credit that can be refunded.”
$1,000 Contribution to New Child Savings Accounts
The tax bill would establish child savings accounts, called MAGA or Trump accounts, and provide a one-time $1,000 government contribution for new accounts opened for children born between Jan. 1, 2025, and Dec. 31, 2028. Taxpayers will be able to contribute up to $5,000 of their money each year to these accounts, which can grow tax-deferred until the child withdraws the money at 18 or older.
Withdrawals of earnings used for qualified expenses, such as eligible expenses for college, a first home or starting a business, would be subject to long-term capital gains taxes. Earnings withdrawn for nonqualified expenses before age 30 would be subject to income taxes and a 10% penalty.
[READ: Profit and Penalty: The Financial Impact of Rising Capital Gains Taxes]
“Other than the $1,000 from the government, other taxpayer investments in these accounts do not appear to provide much tax benefit beyond what taxpayers could achieve with their own taxable investment accounts,” says Mark Luscombe, principal federal tax analyst with Wolters Kluwer.
Money in a 529 college-savings plan, for example, can be used tax-free for college expenses.
Increases HSA Contributions and Eligible Expenses
The tax bill would double the health savings account contribution limits for individuals who earn less than $75,000 per year, or for joint filers earning less than $150,000.
The higher contribution limits would phase out for individuals earning more than $100,000 or joint filers earning more than $200,000. People with income above that level could still make the standard HSA contribution.
Currently, people with HSA-eligible high-deductible health insurance policies — with deductibles of at least $1,650 for single coverage or $3,300 for family coverage — can contribute up to $4,300 to an HSA in 2025 if they have single coverage or $8,550 for family coverage, plus an extra $1,000 if they are 55 or older.
The contributions are tax-deductible (or pretax if through an employer), the money grows tax-deferred in the account, and it can be withdrawn tax-free for eligible medical expenses in any year.
The House bill would also expand HSA eligibility rules to cover gym memberships and other eligible physical activity programs. Singles would be able to withdraw up to $500 per year tax-free (up to $1,000 for families) to pay for membership at a fitness facility or participate in physical exercise or physical activity programs. Currently, those expenses are only HSA-eligible in very limited circumstances.
“Under current law, gym memberships are not an eligible expense unless prescribed by a physician to help treat, manage or prevent a disease, illness or condition,” says Roy Ramthun, president of HSA Consulting Services.
There would be several other changes to eligible HSA expenses, he says, including allowing HSA funds to be used tax-free to pay the monthly fees for direct primary care arrangements.
“Because HSAs have been criticized by Democrats as only benefiting the ‘healthy and wealthy,’ most of the provisions were focused on expanding HSAs to help the middle class and lower-income families,” Ramthun says.
[Read: Guidelines for Making Important Flexible Spending Account Tax Decisions for 2025]
Interest Deduction for Car Loans
The tax bill would make up to $10,000 in interest payments for eligible car loans tax-deductible for 2025 through 2028, phasing out for individuals earning more than $100,000 and joint filers earning more than $200,000. The break would apply only if the vehicle’s final assembly took place in the United States.
Changes to Student Loan Rules and 529 Expenses
The tax bill would make a variety of changes related to education expenses and student loans. It would eliminate subsidized Federal Direct Stafford Loans, which means the government would no longer pay the interest on the loans while the student is in college or during the six-month grace period after graduation.
“The students would be able to borrow the same amount, but as unsubsidized Federal Direct Stafford Loans, says Mark Kantrowitz, author of “How to Appeal for More College Financial Aid.”
Suppose a student qualified for the maximum amount of Federal Direct Stafford Loans, but interest started accumulating immediately. In that case, Kantrowitz estimates that their debt balance would be 17% higher at repayment (after the six-month grace period) with unsubsidized loans than with subsidized loans, assuming current interest rates.
The tax bill would also change the rules for forbearance.
“Borrowers can still obtain a general forbearance. However, this will be limited to nine out of every 24 months, which prevents using it as a long-term pause on payments,” Kantrowitz says.
The rules would be different for medical school students, who would be able to receive a series of 12-month forbearances during their residency and internship, he says. “These forbearances are interest-free for the first four forbearances, and new forbearances beyond that will accrue interest.”
The tax bill would also permanently let employers make tax-free student loan payments for employees. Currently, employers can provide up to $5,250 per year tax-free to help employees repay their student loans, but the tax-free status is scheduled to expire at the end of 2025.
“Making the exclusion from income for employer student loan repayment assistance programs permanent is important because that may cause more employers to offer the benefit — some may have been sitting on the fence due to the temporary nature of the tax break,” Kantrowitz says.
The tax bill would also expand the eligible uses of 529 plans, including using the money tax-free to help with certain expenses for home schooling, says Luscombe.
More from U.S. News
Are Your Chances of Getting Audited Lower in 2025?
State and Local Taxes: What Is the SALT Deduction?
How Much Is the Average Tax Refund and When Will I Get Mine?
What the Trump Tax Plan Could Mean for Families originally appeared on usnews.com
