President-elect Donald Trump has promised some sweeping changes to tax policies in the US, including eliminating Social Security taxes and income tax on tips.
Households of different income spectrums across the US would largely benefit from these tax changes in the short term, a report from the University of Pennsylvania shows. These tax breaks would also add $5.8 trillion to the federal debt over the next decade.
"There's going to be some winners and losers this next round," said Ryan Losi, a certified public accountant and executive vice president at accounting firm PIASCIK.
We wouldn't necessarily see these changes in time for next year's tax return, but some proposals could impact paychecks as early as next year, experts say. As we head into tax season, here's what to know about Trump's tax plan and how it could impact your paycheck and refund.
Trump's tax proposals that could save you money
Here are some tax changes that Trump proposed that could add money to your paycheck or reduce your tax burden.
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💰 Wipe out Social Security taxes
Currently, most people who receive Social Security income pay taxes on 50% to 85% of those benefits (the rate depends on your total gross income, including other sources).
Trump has proposed eliminating the tax on Social Security benefits from income taxes. If you collect Social Security benefit checks or will soon, this would increase the amount you receive, which could help you better afford expenses in retirement, according to Jassen Bowman, an IRS enrolled agent.
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This proposed tax cut wouldn't benefit you if you don't pay taxes on your SSI benefits. Single tax filers who earn less than $25,000 ($35,000 for joint filers) don't pay any taxes on Social Security benefits.
This would help seniors in the short term, but some experts worry about the long-term effects of this tax exemption. Taxes on Social Security benefits are paid into the Social Security department. They are not used to fully fund the benefits you receive, so eliminating taxes could hurt the program overall.
The fund that covers Social Security benefits is expected to run out of money in the next decade. If taxes are eliminated, the fund could be depleted sooner, reaching insolvency in early 2032 instead of late 2033, according to a study from the Committee for a Responsible Budget. The Tax Foundation also estimates this change alone would boost the federal deficit by $1.6 trillion over a decade.
Note: This tax cut would not impact the Social Security payroll tax workers pay. Anyone earning income outside of Social Security benefits would still pay into the Social Security fund.
🕚 Eliminate taxes on overtime pay
If you work overtime, you currently pay income taxes on your overtime pay. One of Trump's campaign proposals promised to end taxes on overtime pay.
Overtime pay is taxed at your regular income tax rate. When you receive overtime pay, your overall paycheck is larger, which affects your overall tax contribution. Higher pay can also push you into a higher tax bracket and change your overall tax rate. If this proposal were to pass, it would likely exempt overtime hours from the regular income tax rate.
Eliminating taxes on overtime pay could significantly bump up your paycheck. Bowman believes that it could also eliminate uncertainty around working overtime.
The Tax Foundation predicts that this change will cost the federal government $680 billion over 10 years, but the precise number depends on how the change is rolled out.
💵 Stop taxing tips
Another potential economic relief to workers is Trump's proposed elimination of taxes on tips. The idea is that any income service workers receive as tips would no longer be subject to income tax.
Service workers are currently required to report and pay taxes on any cash tips they earn. If you earn most of your income through cash tips, this tax change could lower your tax burden.
This tax change could have an additional upside: it might encourage more workers to accurately report their tipped income without fear of taxation. That would give the government a more accurate picture of their earnings, and it could help workers later since benefits like Social Security are calculated based on lifelong reported income.
💲 Make the Tax Cuts and Jobs Act permanent
The Tax Cuts and Jobs Act is Trump's signature tax cut from 2017. The law made tax filing easier for many Americans by lowering overall tax rates. Most of the provisions are set to expire in 2025, but the president-elect has suggested he'd make them permanent.
Keeping the TCJA in place would keep taxes lower for many households and businesses. Some of the notable tax breaks under the TCJA include:
- Lower individual tax brackets for many filers.
- Increasing the standard deduction, which most filers claim.
- An expanded Child Tax Credit (up to $2,000 from the previous $1,000).
The TCJA also made tax planning a little easier. "It's a simplification of the tax system," Bowman said. "We've all gotten used to it."
If the TCJA expires as currently scheduled, many Americans can expect their tax bills to increase, according to the Tax Foundation. Making the TCJA permanent would cost the federal government about $3.7 trillion.
👶 Expand the Child Tax Credit
In addition to the higher Child Tax Credit maximum under the TCJA, Vice President-elect JD Vance has also proposed expanding the tax credit to $5,000 per child. A larger CTC could help lower tax burdens for millions of families.
Under the TCJA, which expires at the end of 2025, the Child Tax Credit is limited to a maximum of $2,000 per child. If this law isn't extended, the CTC would drop to a maximum of $1,000 per child.
In 2021, President Joe Biden's administration temporarily expanded the Child Tax Credit to $3,000 - $3,600 per child under the American Rescue Act. This expansion had a significant impact on millions of families and dropped the child poverty level to a record low. The expanded CTC was able to lift nearly 3 million children out of poverty and reduce food insufficiency, according to a Boston University study. A $5,000 per child increase could provide much-needed relief for millions of families.
It's unclear if the Trump administration will push for an expanded CTC. If it does, passing the law would require congressional approval. A recent attempt to expand the CTC was made in August 2024 but lost the votes needed in the Senate, 48:44. Only three Republican senators voted in favor of an expanded CTC, and Vance was not present to vote on the motion.
Like other tax breaks, expanding the Child Tax Credit would also lead to greater federal deficits.
Tax breaks in jeopardy when Trump takes office
Trump has proposed a variety of tax cuts and credit expansions, but there are some tax breaks that experts say Trump is unlikely to support -- specifically, clean energy tax breaks.
On the campaign trail, Trump indicated he would consider repealing the Biden administration's Inflation Reduction Act. Doing so would require approval from Congress, but if the administration is successful, some clean energy tax credits could disappear.
The $7,500 tax credit for electric vehicles is in jeopardy. Trump's transition team has said they would eliminate this tax break. The fate of other clean energy tax breaks, like the Solar Tax Credit and home energy efficiency tax credits, is less clear.
Additionally, a provision preventing federal taxation on forgiven student loans is set to expire at the end of 2025. Experts don't expect a Republican White House to extend this law.
What does Trump's tax plan mean for you?
In general, expect tax rates to stay low under the new Trump administration. You could receive additional tax breaks on Social Security and tip income, but may also lose energy-efficiencies tax credits.
Experts don't expect many changes ahead of the 2025 tax season, but it's possible new expansions to the Child Tax Credit or other tax breaks could impact your refund next year. Many of the upcoming Trump administration's tax proposals would take time to implement since they would require congressional approval.
We'll keep you updated on any new tax changes that could impact your tax bill or refund.
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