Comprehensive Tax Reform Under H.R. 1
Explaining the Tax Cuts for Working Americans, Small Businesses, and the Broader Economy
H.R. 1 delivers critical tax relief for Americans—permanently lowering tax burdens, simplifying the code, and incentivizing work, savings, and investment. Below is a breakdown of all major tax reforms included in the law, organized into three key areas.
I. Tax Relief for Working Americans
Larger Standard Deduction
The standard deduction is permanently expanded—to $15,000 for individuals and $30,000 for married couples—shielding more income from taxation. This means most taxpayers won’t need to itemize and will pay less in taxes overall.
Child Tax Credit
The $2,000 credit per qualifying child under age 17 is preserved, with up to $1,600 of it refundable. The income phaseout was raised to $500,000 for joint filers, broadening eligibility.
Tax-Free Tips
Up to $20,000 in tips are now exempt from federal income tax. This relief targets restaurant, hospitality and personal service workers. Tips are still subject to FICA payroll taxes.
Tax-Free Overtime Premiums
The 50% premium earned for overtime hours is now exempt from federal income tax on up to $12,000 annually. This reform boosts take-home pay for hourly workers who put in extra time.
Senior Tax Credit
Seniors age 65+ now receive an enhanced additional deduction—up to $6,000—on top of the standard deduction. Indexed for inflation, this provides relief for those on fixed incomes.
Marriage Penalty Elimination
The bill aligns tax brackets so that married couples no longer pay more in taxes than they would filing individually. This removes a longstanding disincentive for marriage.
Trump Savings Accounts (Modeled after HSAs and Roth IRAs)
Contributions are now tax-deductible up to $10,000 annually with tax-free withdrawals for qualified expenses—like health care, education, child care, and housing emergencies.
Education Expense Deduction
A new deduction of up to $2,500 for tuition, fees, books, and credentialing is available to anyone pursuing workforce development, not just traditional students.
Interest Deduction for Car Loans(Provision modeled on prior mortgage interest treatment)
Families can deduct interest on loans for American-made vehicles—up to $2,000 per year—supporting mobility and U.S. manufacturing. The deduction phases out at $100k individual and $200k joint filing.
Student Loan Interest Deduction
The cap on student loan interest deductions is increased from $2,500 to $5,000 and expands eligibility based on income.
II. Small Business and Self-Employed Tax Relief
20% Pass-Through Deduction Made Permanent
The 20% deduction for qualified business income (QBI) from S corps, LLCs, partnerships, and sole proprietorships is now permanent, reducing effective tax rates for millions of small businesses.
Expanded Section 179 Expensing
Small businesses can now deduct up to $2.5 million in purchases of equipment, vehicles, and technology in the year they are placed in service—helping them reinvest faster.
Bonus Depreciation Extension
100% bonus depreciation continues permanently, allowing full first-year write-offs of qualifying property—both new and used.
Cash Accounting Threshold Raised
Businesses earning up to $25 million annually can now use simple cash accounting, reducing complexity and compliance costs.
Startup Cost Deduction
Startups may now deduct up to $20,000 in formation costs—quadrupling the previous cap and encouraging entrepreneurship.
Payroll Tax Credits for Hiring Targeted Workers
Credits for hiring veterans, apprentices, long-term unemployed, and formerly incarcerated individuals are expanded up to $5,000 per worker in the first year.
Self-Employment Tax Deduction
Self-employed individuals earning under $150,000 can deduct a portion of self-employment taxes, reducing the effective rate on gig and freelance work.
Home Office Deduction Simplified
The home office deduction for eligible self-employed individuals is standardized with a flat-rate option up to $2,000 per year.
III. Additional Tax Provisions and Reforms
SALT Cap Reform
Raises the State and Local Tax deduction cap from $10,000 to $40,000 for households earning under $500,000, easing tax burdens in high-cost areas.
Estate Tax Reform
Doubles the estate tax exemption to $25 million for individuals, $50 million for couples. Preserves generational family businesses and farms from liquidation due to estate taxes.
American Manufacturing Credit
Creates a 10% tax credit for companies that relocate production to the U.S. or build new domestic facilities. Applies to capital expenses and wages.
Made-in-America Deduction
Provides a 5% deduction for companies sourcing key inputs from U.S. suppliers—encouraging domestic supply chain resilience.
Charitable Giving Expansion
Increases the AGI limit for charitable cash contributions to 100%, and allows non-itemizers to deduct up to $600 in donations annually.
Clean Energy Innovation Credit
Consolidates and refocuses clean energy tax credits on advanced U.S.-made technologies including hydrogen, nuclear, and carbon capture.
Capital Gains Incentive for Long-Term Holding
Creates a tiered capital gains tax system with lower rates for assets held more than 3, 5, and 10 years—rewarding long-term ownership and stability.
IRS Modernization and Free Filing
Establishes a free, direct file IRS portal and new taxpayer advocate protections. Also creates an independent appeals office to handle disputes fairly.
Inflation-Adjusted Tax Brackets
Permanently ties income tax brackets to chained CPI, preventing stealth tax hikes through inflation.