Tax policy is poised to take center stage in the coming year as the expiration of the 2017 Tax Cuts and Jobs Act (TCJA) approaches in 2025. Enacted as the most comprehensive tax reform in 30 years, the TCJA introduced sweeping changes impacting both individual and corporate taxpayers.

During his campaign, former President Trump expressed his intention to extend many TCJA provisions permanently while proposing new initiatives. Here’s a look at how Trump’s tax plan could affect your finances.

The Future of Key TCJA Tax Provisions

The TCJA brought significant changes to the tax landscape, including a reduction in individual income tax rates, with the top marginal rate dropping from 39.6% to 37%. For 2024, this rate applies to single filers earning more than $609,350.

Additionally, the TCJA doubled the standard deduction, simplifying the filing process for most Americans by reducing the need to itemize deductions. Families also benefited from the expanded child tax credit, which increased from $1,000 to $2,000 per child.

Business taxpayers saw major advantages as well. The corporate tax rate was cut from 35% to 21%, and a 20% deduction was introduced for income from pass-through entities. However, to offset the cost of these reforms, the TCJA repealed personal and dependency exemptions and placed a $10,000 cap on state and local tax (SALT) deductions.

Trump has expressed interest in making the TCJA’s provisions permanent while removing the SALT deduction cap. Critics warn that eliminating the SALT limit could lead to unexpected consequences, such as subjecting more taxpayers to the alternative minimum tax (a parallel tax system aimed at high-income earners that requires taxpayers to calculate their taxes twice). They also note that repealing the SALT cap would reduce revenue that currently helps to offset other tax reforms under the TCJA.

Proposal to Eliminate Taxes on Social Security, Tips, and Overtime Pay

In addition to making the tax cuts from the TCJA permanent, Trump has expressed plans to remove taxes on specific income sources, including Social Security benefits, tips, and overtime pay.

Trump has previously emphasized that senior citizens should not face federal taxes on their Social Security benefits. Currently, approximately 40% of beneficiaries are subject to federal income tax on these payments, as reported by the Social Security Administration (SSA).

Under the existing tax code, single filers with a combined income exceeding $34,000, or married couples filing jointly with income over $44,000, may have up to 85% of their Social Security benefits taxed. For those with combined income between $25,000 and $34,000 (single filers) or $32,000 and $44,000 (married filing jointly), up to 50% of benefits are taxable. Beneficiaries with combined income below these thresholds do not pay taxes on their benefits.

Trump has also suggested ending taxes on tip income and overtime pay. Experts believe this initiative could resemble a recent Alabama law that exempts overtime pay from state taxes, potentially providing relief to hourly workers across the country.

Push for Lower Corporate Taxes and New Tariffs

Lowering corporate tax rates remains a central focus of Trump’s economic policies. The TCJA reduced the corporate tax rate from 35% to 21% during Trump’s first term, and he has proposed further cutting the rate to as low as 15% for corporations that manufacture their products in the United States.

In addition to tax cuts, Trump has called for imposing a 10% tariff on all imported goods and a 60% tariff on products imported from China. This move is in an effort to boost domestic manufacturing and encourage consumers to prioritize American-made products. Critics caution that higher tariffs could lead to increased costs for consumers, disproportionately affecting low- and middle-income households. The added expenses on imported goods may strain budgets, offsetting any potential economic benefits from tax reforms.

What Does This Mean for Taxpayers?

With the TCJA provisions set to expire in 2025, significant tax policy changes could be on the horizon. Taxpayers should stay informed and prepared as developments unfold, particularly with potential shifts in corporate tax rates and tariffs impacting both businesses and individuals.