President Trump signed nearly 1,000 pages of tax legislation into law on July 4th, delivering on his campaign promise to extend expiring Tax Cuts and Jobs Act provisions while adding several new deductions. The speed of passage surprised many observers, including Washington insiders who expected a longer, more contentious process.
In this episode of Federal Tax Updates, hosts Roger Harris, EA, and Annie Schwab, CPA, discuss the new law with tax policy expert Thad Inge from Van Scoyoc Associates. Their conversation breaks down the key provisions, implementation challenges, and practical implications for tax practitioners and their clients.
How the Bill Became Law
The legislative process moved faster than most expected. As Inge explains, “I think we underestimated the political power of President Trump and his ability to bring his party along.” Despite narrow margins in both chambers—the House passed it by one vote, and Vice President Vance had to break a Senate tie—the bill met Trump’s July 4th deadline.
The process wasn’t without drama. House Republicans had been planning for over a year, but the final weeks saw intense negotiations. The Senate essentially forced the House to accept its version without changes, creating an all-or-nothing scenario that some called “jamming” the House.
What started as Trump making an off-the-cuff comment about a July 4th signing became the driving force behind the timeline. As Harris notes, he “just kind of made that up on the fly,” yet it became the overriding priority that shaped every subsequent decision.
Individual and Family Provisions Made Permanent
The core of the legislation extends and makes permanent most of the individual provisions from the 2017 Tax Cuts and Jobs Act that were set to expire at the end of 2025.
- Tax rates and deductions. The current tax rate structure becomes permanent, along with the larger standard deductions that replaced personal exemptions. The mortgage interest deduction limit of $750,000 also continues permanently.
- Child Tax Credit. The credit increases slightly to $2,200 per child beginning in 2026 and becomes permanent with inflation adjustments.
- Estate and gift tax. The increased exemption amounts from the TCJA are now permanent. Starting in 2026, the exemption will be an inflation-adjusted $15 million for individuals and $30 million for married couples filing jointly.
- State and local tax (SALT) deduction. One of the most negotiated provisions, the SALT cap increases from $10,000 to $40,000, but only temporarily through 2029. The deduction also phases out at higher income levels, and it reverts to $10,000 after 2029.
As Inge explains, the SALT issue created significant tension. “If you’re from a Midwestern or rural state and have very low state and local taxes, then folks are not going to be crazy about these state and local tax deductions. But if you’re from Westchester County in New York, it’s just killing your high income base.”
New Deductions for Specific Groups
The legislation includes several new deductions that were campaign promises.
- No tax on tips. Tips up to $25,000 annually become deductible for workers in industries where tipping is customary and paid voluntarily by customers. The provision applies retroactively to January 1, 2025, through 2028.
- No tax on overtime. Overtime pay becomes deductible up to $12,500 for individuals and $25,000 for joint filers, also covering 2025-2028.
- New deduction for senior citizens. Taxpayers over 65 get an additional $6,000 standard deduction, whether they itemize or claim the standard deduction, through 2028. The deduction begins to phase out for individuals with modified adjusted gross income of more than $75,000 ($150,000 if married filing jointly).
- Deductible car loan interest. Interest on car loans becomes deductible up to $10,000 if the vehicle’s final assembly occurred in the United States. This applies to individuals earning under $100,000 and joint filers under $200,000, covering 2025-2028.
Business Provisions
Several business deductions were restored and made permanent after being scaled back in the original TCJA.
- Section 199A. The 20% deduction for pass-through entities continues permanently, with increased phase-out thresholds making it easier for more businesses to qualify. The House had actually proposed increasing this to 23%, but the Senate brought it back to 20%.
- Research and development. Companies can immediately expense R&D costs again, retroactive to January 1, 2025, and this becomes permanent.
- Bonus depreciation. 100% bonus depreciation returns permanently for qualifying assets.
- Business interest. The business interest expense limitation becomes more favorable permanently.
As Inge notes, these were “pay-fors” from the original 2017 law. “When they passed TCJA, they said we should make these individual deductions less favorable and just bring the rates down, but we’ll also phase out these business deductions.” When the phase-outs actually took effect, businesses pushed back hard, leading to their restoration.
Administrative and Reporting Changes
The legislation includes several provisions that will reduce compliance burdens:
- 1099-K reporting. The threshold returns to $20,000 and 200 transactions, eliminating the lower $600 threshold.
- 1099-MISC and 1099-NEC thresholds. The threshold for issuing these forms increases from $600 to $2,000 and will be indexed for inflation going forward. As Inge explains, this came from field hearings where “someone said, ‘Why isn’t this indexed to inflation? It’s been like this forever.’”
- Employee retention credit. Modifications include enhanced penalties for fraudulent claims and a cutoff date for certain quarters, though the changes are more limited than initially proposed.
Implementation Challenges
The retroactive effective dates create immediate compliance challenges. Harris points out a key misconception: “You have to attack the myth that their paychecks are going to start going up” because these are deductions taken when filing tax returns, not changes to payroll withholding.
For the tip and overtime provisions, significant questions remain about practical implementation. Schwab notes, “No tax on tipped income where tipping is customary and paid voluntarily by the customer, that’s hard to define.”
Harris illustrates the restaurant industry challenge: “You walk in a restaurant and if there’s six of you, they tell you we’re going to add an automatic 20%. Is that a voluntary tip?” These de