Proposed Tax Changes in the House Budget Resolution for 2025
Written by: Madison Price Zender, CPA, MPAcc
The U.S. House of Representatives has introduced its Budget Resolution for Fiscal Year 2025, outlining significant tax policy changes that could significantly impact individuals and businesses. These proposals, however, are not yet law and will require further legislative action before they take effect. If enacted, they would extend key provisions from the Tax Cuts and Jobs Act (TCJA), introduce new tax cuts, and repeal specific tax policies implemented under the Inflation Reduction Act (IRA).
Below is a breakdown of the proposed tax changes and what they could mean for taxpayers.
Extension of the Tax Cuts and Jobs Act (TCJA) Provisions for Individuals
- Tax Brackets and Rates – The proposal maintains the current seven individual income tax brackets, keeping the top rate at 37% rather than allowing it to revert to 39.6% after 2025. This would extend the lower rates initially introduced by the TCJA.
- Alternative Minimum Tax (AMT) Exemption – The higher AMT exemption amounts enacted under the TCJA would remain in place, ensuring fewer taxpayers are subject to this parallel tax system.
$4.5 Trillion in Net Tax Cuts Over the 2025-2034 Budget Window
The House Budget Resolution projects $4.5 trillion in total tax cuts over the next decade. These reductions primarily come from extending the TCJA, lowering taxes on businesses, and eliminating certain taxes on individuals. While these cuts could stimulate economic growth, they would also increase the federal deficit unless offset by spending reductions or other revenue sources.
Restoration of TCJA Business and International Tax Provisions
Several business tax provisions that began to phase out under the TCJA would be reinstated, including:
- 100% Bonus Depreciation – Reinstating the provision that allows businesses to fully deduct the cost of qualifying capital investments in the year they are placed in service, rather than spreading the deductions over multiple years.
- Immediate Deduction of R&D Expenses – Restoring the ability to deduct all research and experimentation costs upfront instead of amortizing them over five years.
- Expanded Interest Deduction – Returning the limit on net interest expense deductions to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA), as opposed to the more restrictive current limit based on earnings before interest and taxes (EBIT).
- Favorable International Tax Treatment – Maintaining the current deduction and tax rates on Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII), preventing the scheduled tax increases set to take effect in 2026.
Elimination of Income Taxes on Social Security Benefits
This proposal would completely eliminate federal income taxes on Social Security benefits, providing retirees with more net income. Currently, up to 85% of Social Security benefits can be taxable depending on a retiree’s total income.
Elimination of Income Taxes on Tips
Service industry workers would see a boost in take-home pay as tips would no longer be considered taxable income. Employers would also no longer be required to report tip income to the IRS for payroll tax purposes.
Elimination of Income Taxes on Overtime Pay
Overtime wages would become completely tax-free, meaning workers who clock extra hours would retain the full amount of their additional earnings. This policy aims to incentivize workforce participation and reward those working beyond standard hours.
Repeal of the State and Local Tax (SALT) Deduction Cap
The resolution proposes eliminating the current $10,000 cap on state and local tax (SALT) deductions. This would allow taxpayers—particularly those in high-tax states like California, New York, and New Jersey—to deduct more of their state and local taxes on their federal returns.
Potential Changes to the Tax Treatment of Carried Interest
Carried interest—profit shares earned by investment fund managers—is currently taxed as long-term capital gains rather than ordinary income. The House proposal suggests modifying this tax treatment, which could result in higher tax liabilities for private equity and hedge fund professionals.
Repeal of the Inflation Reduction Act (IRA), Eliminating Green Energy Tax Credits
The budget resolution proposes fully repealing the IRA, which would eliminate federal tax credits for clean energy investments, electric vehicles, and energy-efficient home upgrades. This could impact businesses and individuals who were planning to take advantage of these incentives.
What’s Next?
Since this budget resolution is only a proposal, it must pass both the House and Senate before becoming law. Even if passed, portions of these tax changes may be revised or removed through negotiations.
Taxpayers and business owners should stay informed about these potential changes and plan accordingly. We will continue to monitor legislative developments and provide updates as new information emerges.
