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- Trump Personal Tax 'Saves' for 2025: 6 Key Updates Affecting Your Tax Return
Trump Personal Tax 'Saves' for 2025: 6 Key Updates Affecting Your Tax Return
Understanding these changes now can help you plan ahead and potentially save money. What does this mean for your wallet?
Key Highlights:
Permanent extension of 2017 tax brackets and rates
Increased child tax credit to $2,500 through 2028
New tax exemptions for Tips
New tax deduction for Overtime Pay
Higher state and local tax (SALT) deduction cap
New deduction for auto loan interest on American-made vehicles
1. Permanent Tax Brackets and Rates
The biggest change in the Trump tax plan is making the 2017 Tax Cuts and Jobs Act (TCJA) tax rates permanent. These rates were set to expire at the end of 2025, which would have meant higher taxes for most Americans starting in 2026.
Filing Status | Current Rate | Without Extension (if left to expire) | With Trump Plan |
Single | 10%, 12%, 22%, 24%, 32%, 35%, 37% | 10%, 15%, 25%, 28%, 33%, 35%, 39.6% | 10%, 12%, 22%, 24%, 32%, 35%, 37% |
Married Filing Jointly | 10%, 12%, 22%, 24%, 32%, 35%, 37% | 10%, 15%, 25%, 28%, 33%, 35%, 39.6% | 10%, 12%, 22%, 24%, 32%, 35%, 37% |
What This Means For You
Without this change, your tax rates would increase in 2026. For example, if you're currently in the 22% tax bracket, you would move to the 25% bracket resulting in an extra 3% taxes payable. By making these rates permanent, most taxpayers will continue to pay lower taxes than they would if the TCJA expired.
2. Increased Child Tax Credit
The child tax credit would increase from the current $2,000 per child to $2,500 per child from 2025 through 2028. After 2028, it would return to $2,000 but would be adjusted for inflation in future years. Without this change, the credit would have dropped to $1,000 per child at the end of 2025.
What This Means For You
If you have children under 17, you'll get an extra $500 per child in tax credits for tax years 2025 through 2028. For a family with two children, that's an additional $1,000 in tax savings each year. Remember that a tax credit directly reduces your tax bill, dollar for dollar.
Example: A family with two children would receive a $5,000 tax credit for tax years 2025-2028, compared to $4,000 under current law and just $2,000 if the TCJA expired without extension.
Who qualifies for the child tax credit?
To qualify, you must have a child under 17 who is your dependent, has a Social Security number, and lives with you for more than half the year. Income limits apply, with the credit beginning to phase out at $200,000 for single filers and $400,000 for married couples filing jointly.
3. Tax Exemption for Tips
One of the most talked-about changes is a new tax deduction for tip income. From 2025 through 2028, workers in traditionally tipped industries (like restaurants, hotels, and salons) would be able to deduct their tip income from their taxable income. This doesn't apply to highly compensated employees.
What This Means For You
If you work in a job where you regularly receive tips, this could significantly lower your taxable income. For example, if you earn $30,000 in wages and $15,000 in tips annually, you would only pay taxes on the $30,000 in wages. This could move you to a lower tax bracket and reduce your overall tax bill.
Industries That Benefit
| Important Note:You still need to report all tip income to your employer and on your tax return, even though it will be deductible. Failing to report tips could result in penalties. |
4. Tax Deduction for Overtime Pay
Similar to the tip income exemption, the bill would allow workers to deduct overtime compensation from their taxable income from 2025 through 2028. This applies to the premium portion of overtime pay (typically the extra 50% above regular pay for hours worked beyond 40 per week). Highly compensated employees would not be eligible.
What This Means For You
If you regularly work overtime, this change could reduce your taxable income. For example, if you earn $50,000 in regular wages and $10,000 in overtime pay, you would only pay taxes on the $50,000 in regular wages. This could result in significant tax savings, especially for workers in manufacturing, healthcare, and other industries where overtime is common.
Example: An employee earning $25/hour who works 10 hours of overtime each week could save approximately $1,950 in federal taxes annually under this provision.
Temporary Benefit
Remember that both the tip and overtime deductions are temporary and scheduled to expire after the 2028 tax year unless extended by future legislation.
5. Higher SALT Deduction Cap
The State and Local Tax (SALT) deduction cap would increase from the current $10,000 limit to $40,000 for taxpayers earning less than $500,000 per year. For those earning more than $500,000, the cap would phase down from $40,000 to $10,000. The cap and income thresholds would increase by 1% per year over the next 10 years.
What This Means For You
This change primarily benefits homeowners in high-tax states like California, New York, New Jersey, and Illinois. If you pay more than $10,000 in state and local taxes (including property taxes and either income or sales taxes), you'll be able to deduct more of these expenses on your federal return, potentially reducing your federal tax bill.
Who Benefits Most
| Important Note:You must itemize deductions to benefit from the SALT deduction. If you take the standard deduction, this change won't affect you. |
6. Auto Loan Interest Deduction
The bill introduces a temporary deduction for auto loan interest on vehicles with final assembly in the United States. This deduction would be available from 2025 through 2028 and would be capped at $10,000. The deduction phases out for single filers with income above $100,000 and joint filers with income above $200,000.
What This Means For You
If you're planning to buy an American-made vehicle with a loan between 2025 and 2028, you could deduct the interest you pay on that loan from your taxes. This deduction would be available whether you itemize or take the standard deduction, making it accessible to more taxpayers.
Example: If you have a $30,000 auto loan with 6% interest, you could deduct up to $1,800 in interest payments in the first year, potentially saving hundreds in taxes.
How do I know if a vehicle qualifies as "American-made"?
The vehicle must have final assembly in the United States. This information is typically available on the vehicle's window sticker or can be verified using the vehicle identification number (VIN). Many popular models from manufacturers like Ford, GM, Tesla, and even some foreign brands with U.S. factories would qualify.
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