Tax Cuts 2.0

On Friday, President Trump signed into law a broad tax-and-spending package that extends and expands several provisions from the Tax Cuts and Jobs Act (TCJA) of 2017 that were due to sunset in 2026. The new law includes significant tax adjustments, many of which will take effect beginning in 2025.

Estate and Gift Tax: The exemption increases to $15 million for individuals and $30 million for married couples, with inflation indexing.

Income Tax Rates: The 2017 tax brackets and standard deductions are permanently extended. Without this action, most rates would have increased at the end of this year.

‘SALT’ Deduction Expansion: The state and local tax (SALT) deduction cap temporarily increases from $10,000 to $40,000 in 2025. The cap will grow by 1% annually through 2029 before reverting to $10,000 in 2030. The deduction phases out for incomes over $500,000 but cannot drop below $10,000. This primarily benefits taxpayers in high-tax states, like New Jersey, California and New York who itemize deductions.

Child Tax Credit: Instead of declining to $1,000 in 2026, the credit increase to $2,200 starting in 2025, with inflation adjustments beginning in 2026.

Senior Deduction: A new $6,000 deduction for individuals over 65 runs through 2028, available for those with modified adjusted gross income (MAGI) under $75,000 (or $150,000 for joint filers).

To offset the cost of these tax changes, the legislation includes significant spending reductions to social welfare programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP). According to the Congressional Budget Office (CBO), the law includes nearly $1 trillion in cuts to Medicaid by 2034, which pays for the health care of approximately 78 million adults and children. It will also reduce federal spending on the SNAP program, which provides monthly food assistance payments to approximately 42 million people.

The bulk of the Medicaid savings come from two provisions. The first provision is a new national work requirement for some individuals in the program who must prove they worked at least 80 hours the month before they signed up for coverage (or qualify for an exemption). The CBO estimates this saves $280 million over the next 6 years by reducing eligibility and creating compliance barriers.

The second provision implements new restrictions on states’ ability to impose taxes on medical providers, which are used to leverage a larger federal contribution. On average, the federal government covers 60% of Medicaid costs for patients and states cover the remaining 40% but the share covered by the Federal government increases in poorer states. These provisions are expected to shift more fiscal responsibility to state governments, with states that have larger rural or low-income populations expected to feel the effects most acutely.

This legislation introduces a wide range of tax adjustments and spending shifts that will affect both individual households, estate planning strategies, and public services. We are closely monitoring additional regulatory developments and will continue to share timely guidance, particularly as it relates to strategic planning opportunities, as the tax landscape evolves.

Meghan Pearson