Federal Tax Bill 2025

House Passes Reconciliation Bill – On to the Senate

On Thursday, May 22, the House of Representatives passed the reconciliation bill by the narrowest of margins – one vote. The bill is far-reaching but focuses primarily on extending provisions of the 2017 Tax Cuts and Jobs Act (TCJA), as well as additional tax proposals that were highlighted during the Trump campaign. As part of the bill, the debt ceiling would also be raised to $4 trillion. While passing the House is an important milestone, the bill now heads to the Senate, where it will be subject to debate and potential revisions. We offer some highlights:

Extensions of the 2017 Tax Cuts and Jobs Act 

Part of the bill focused on extensions of TCJA (which is set to expire at the end of the year), including "permanently" extending such items as the

• Increased standard deduction and expanded child tax credit (with the modification that Social Security numbers will be required to receive this credit), with an additional temporary increase through 2028;
• Top individual marginal tax rate of 37%;
• Higher estate-tax exemption (set to be $15 million in 2026);
• Increased alternative minimum tax (AMT) exemption and phase-out thresholds;
• Qualified business deduction (referred to as 199A), with a higher deductible amount of 23% vs. the original 20%; and
• Cap on the state and local tax (SALT) deduction, with a higher cap of $40,000 vs. the original $10,000 (note that the $40,000 cap is reduced for higher-income taxpayers over $500,000, with a limitation on the deduction for those in the highest tax bracket)

Additional Tax Proposals

In addition to extending key provisions of TCJA, the bill outlined additional provisions that President Trump presented on the campaign trail, including

• Through 2028, the ability for taxpayers below certain income thresholds to deduct from income (so essentially no income tax):
  • Overtime income (which would now be required to be reflected on the W-2)
  • Qualified tips (cash tips received by an individual in an occupation which traditionally and customarily receives tips)
  • Qualified passenger-vehicle loan interest

  • Up to $4,000 for individuals age 65 or older; 

• Extension and enhancements of certain credits, including the adoption credit, the paid family and medical leave credit, and the employer-provided child-care credit; 

• Additional elementary-, secondary- and home-school expenses treated as qualified higher-education expenses for purposes of 529 accounts;

• The creation of a "Trump account", an investment account for children under the age of eight, which could be used for qualified expenses including education, small business loans, and personal residence purchases after the child reaches age 18. Children born after Dec. 31, 2024, and before Jan. 1, 2029, would receive a $1,000 contribution from the federal government. Distributions taken for qualified purposes would be taxed as long-term capital gains. 

Potential Revenue Raisers

To help cover the cost of the tax proposals, the draft bill included numerous provisions to raise revenue, including reduced spending on Medicaid and nutrition assistance (including new work requirements and more frequent eligibility checks) and the termination of numerous clean-energy credits (such as clean-vehicle and energy-efficient home-improvement credits), as well as the implementation of excise taxes on large private university endowments, increases in net investment income taxes on certain private foundations, and the introduction of certain taxes on inbound investment by foreign governments. 

A Milestone Reached, but Still Work to Be Done

Passing the House is an important milestone, but now the bill moves on to the Senate, where the bill will likely face more debate, with the potential for more additions and revisions. Ultimately, this process will take time, with Congress setting a goal of a final bill signed into law in July, and the final bill could look very different than the initial drafts. Consequently, we do not recommend taking any actions due to the potential revisions of this bill.  We will provide updates on the legislation as meaningful developments and additional milestones are reached.