Under current law, tips and overtime pay are treated as taxable income. However, new legislation aims to change this by exempting all tip income from federal income tax through 2029, as long as the income is earned in occupations that traditionally receive tips. The proposal also seeks to exempt overtime pay from federal income tax, potentially boosting take-home earnings for hourly workers.
Social Security Benefits
During his campaign, President Trump also pledged to exempt Social Security benefits from taxation, but this measure is not included in the bill. Instead, the legislation introduces a $4,000 deduction for eligible seniors aged 65 or older, available from 2025 through 2028. To qualify, single taxpayers must have a modified adjusted gross income (MAGI) below $75,000, or $150,000 for married couples filing jointly.
Estate and gift tax exemption
Starting in 2025, the federal estate and gift tax exemption is set at $13.99 million per individual. Under the proposed bill, this exemption would rise to $15 million per individual—or $30 million for married couples—beginning in 2026, with future adjustments for inflation. This increase would enable individuals to transfer greater wealth without being subject to federal estate or gift taxes.
Auto Loan Interest
Currently, auto loan interest is not tax-deductible. However, the proposed bill introduces an above-the-line deduction for up to $10,000 in eligible vehicle loan interest paid within a taxable year. This deduction would begin to phase out for single taxpayers with a MAGI over $100,000 and for married couples filing jointly with a MAGI over $200,000.
To qualify, certain conditions must be met, including the requirement that the vehicle's final assembly takes place in the United States. If passed, this deduction would apply to tax years 2025 through 2028.
Electric Vehicles
Eligible taxpayers can currently receive a tax credit of up to $7,500 for purchasing a new "clean vehicle" or up to $4,000 for a used one. Originally set to expire in 2032, the proposed bill would instead end these credits for purchases made after December 31, 2025.
