Trump's 2025 Tax Plan: Possible Increases or Decreases in Your Tax Return
The One Big Beautiful Bill (OBBB) has brought about several changes to the US tax system, affecting individuals and businesses alike. This article will focus on the key provisions that impact car loans, the Child Tax Credit (CTC), tips for service workers, small businesses, and student loans.
Car Loans and the New Interest Deduction
The OBBB has introduced a temporary car loan interest deduction, allowing taxpayers to deduct up to $10,000 in interest paid on new vehicles. However, this benefit is subject to income phase-outs, making it less accessible to higher-income earners.
Tightened Social Security Number Requirements for the Child Tax Credit
One of the most significant changes concerns the CTC. The OBBB has significantly tightened SSN requirements for claiming the CTC. Now, both taxpayers and their spouses (for joint filers) must have valid SSNs to claim the CTC. This change negatively impacts noncitizen taxpayers who use Individual Taxpayer Identification Numbers (ITINs), as they are excluded from claiming the CTC for their children, even if the children have SSNs.
This provision could affect approximately 2.6 to 2.7 million children in the US, potentially reducing tax savings for immigrant families by millions of dollars. It also deprives many immigrant families, who file taxes using ITINs, of anti-poverty support proven to improve children's health and education outcomes.
Tax Changes for Service Workers and Tips
The OBBB has also brought about changes for service workers who earn tips. Workers earning less than $15,750 in annual tip income and having no other income or tax breaks could potentially pay zero federal income tax. However, non-cash tips (like artwork) remain fully taxable as ordinary income and are not eligible for a tip income deduction.
Tipped workers earning more than $150,000 (or $300,000 for joint filers) will see a phaseout of the tip tax deduction. The IRS has yet to clarify the definition of a "tipped employee," leaving uncertainty about which workers will be affected.
Small Business Provisions
Several key tax provisions affecting small businesses are included in the OBBB. These include the permanent extension of the "Qualified Business Income" (QBI) tax rate, making permanent "bonus depreciation," and providing more opportunities to use "Section 179" expensing. The OBBB has also increased the limits for Section 179 expensing, allowing businesses to now deduct up to $2.5 million in property.
The Child Tax Credit and its Implications
The OBBB has extended and increased the Child Tax Credit amount (up to $2,500 temporarily and $2,200 permanently). However, these benefits do not extend to families where the parents lack SSNs. As a result, many immigrant families who file taxes using ITINs are excluded from receiving the CTC benefit for their children.
Families with four children could see an increase in child tax credit breaks from $8,000 to $8,800. However, this benefit may not extend to families where the parents lack SSNs.
The Trump Accounts and Education Savings
The OBBB has introduced Trump Accounts, which might help your child save for future educational, homeownership, and entrepreneurial costs.
Tax on Overtime and its Implications
The OBBB has created a "no tax on overtime deduction" worth up to $12,500 for tax years 2025 through 2028, with the same income phaseouts as "no tax on tips."
Student Loan Forgiveness, Gambling Loss Deductions, and Medicaid Cuts
Several other provisions, such as the new cap on gambling loss deductions, the ending of the 2025 EV Tax Credit, and new Medicaid cuts, are also part of the OBBB.
Payroll taxes and state/local income taxes still apply.
Several provisions listed above are expected to receive additional clarification from the IRS by October 2025.
Personal Finance Implications of the OBBB for High-Income Earners
The OBBB has partially restricted the car loan interest deduction for high-income taxpayers, as the benefit is now subject to income phase-outs.
Impact of the OBBB on Business Finances
The OBBB has provided opportunities for businesses, such as the permanent extension of the "Qualified Business Income" tax rate and the increase in limits for Section 179 expensing. However, it has also negatively impacted service workers by limiting the tip tax deduction for those earning above certain income thresholds.
