2025 Tax Bill Changes and Their Impact on Your Financial Planning

From standard deduction amounts to tax brackets and Medicaid cuts, here’s what individual filers need to know about tax changes.

This new law (Public Law 119-21 and referred to by Trump as the “big, beautiful bill”) reshapes many tax rules that individuals rely on. But understanding the various changes and their implications for taxpayers can be confusing.

Essentially, the tax bill extends many of the lower tax rates and increased standard deduction base amounts from the 2017 Tax Cuts and Jobs Act(TCJA), which was enacted during Trump's first term. As a result, some concerns about "tax cliffs"— key provisions initially set to expire at the end of this year — have been alleviated.

The legislation introduces several new temporary tax deductions and credits, including those related to tips and overtime pay. However, the bill also eliminates or plans to phase out certain incentives, including the federal EV tax credit and other clean energy credits.

Some changes are effective as of this year (affecting returns typically filed in early 2026), while others don't come into play until 2026 (impacting returns filed in early 2027).

• Cost-wise, the Congressional Budget Office (CBO) projects that this law will increase federal deficits by approximately $4.1 trillion over the next decade. That includes about $700 billion in added interest costs on federal debt.

• And...the law introduces substantial cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps), which provide health and food support to millions of people in the United States.

  
  

Yes. It’s a lot to digest. But we’ll dive into many of the changes in more detail below, beginning with some key points.

summary of the tax bill

Congress passed the massive bill using the budget reconciliation process. That approach allows a single party, in this case, Republicans, to approve certain legislation with a simple majority.

GOP members in the U.S. Senate narrowly approved the bill after a tie-breaking vote from Vice President JD Vance. Republicans in the U.S. House of Representatives also approved the bill along party lines.

The megalegislation is considered by many Republicans to be the signature fiscal effort of Trump's second term. Here's an overview of some key tax provisions.

• The seven tax brackets and their lowered rates stay put for now, so taxpayers won’t suddenly see higher income tax rates creep back up after 2025.

• Similarly, the standard deduction remains nearly double what it was before 2017 and will continue to be adjusted each year for inflation. (For 2025, that’s $15,750 for singles and over $31,000 for couples filing jointly.)

Also, according to separate analyses by the CBO and the Joint Committee on Taxation (JCT), the benefits from this tax law aren’t spread evenly.

People with higher incomes are expected to receive the most significant tax breaks, while many lower-income households may actually see their overall resources decrease.

Other key points:

• The State and local tax (SALT) deduction cap, which limits how much you can deduct for state and local taxes, rises sharply (subject to income limits) from $10,000 to $40,000 for 2025 and stays elevated through 2029 before dropping back in 2030.

• New temporary deductions allow taxpayers to deduct interest on car loans for new U.S.-assembled vehicles (up to $10,000 per year) purchased after 2024, with income phaseouts and expiration at the end of 2028.

• Employees in traditionally tipped jobs, as specified by the U.S. Treasury and IRS, can exclude up to $25,000 in tips from federal income tax through 2028, subject to income limits and specific eligibility requirements.

• Overtime pay up to $12,500 (or $25,000 for joint filers) can be deducted in the same period, again with income phaseouts.

• The federal Child Tax Credit of $2,200 per child remains, but requires a valid Social Security number.

• New child savings accounts (called "Trump accounts") start with a $1,000 federal deposit for kids born in 2025–2028 and allow further yearly contributions subject to limits and rules.

• Increased estate tax exemption, raising the threshold to $15 million beginning in 2026, indexed to inflation.

• Meanwhile, Medicaid and SNAP funding take significant hits,resulting in reduced eligibility or enrollment, increased work requirements, and lower funding levels. Some expect millions to lose healthcare coverage or food assistance because of those program cuts.