SALT, the Estate Tax, and More: How the Megabill Could Affect You

The House passed the new tax bill last month. Speaker Mike Johnson celebrates the vote. (Kevin Dietsch/Getty Images)

As Congress works to pass President Donald Trump’s tax and spending megabill, key provisions affecting Americans’ wallets will go down to the wire.

A main goal of the One Big Beautiful Bill Act is to extend the lower marginal tax rates established by the Tax Cuts and Jobs Act of 2017, which are set to expire at the end of this year. Expansion of the state and local tax (SALT) deduction, which the 2017 law capped at $10,000, has emerged as a major sticking point. Other individual provisions could get tweaked to realize more cost savings.

Here’s where key wallet issues stand:

Extension of the Tax Cuts and Jobs Act Individual Provisions

To wring more revenue from the bill, which has grown pricier since the Senate parliamentarian ruled against certain spending cuts, there’s an off chance that lawmakers could allow the highest marginal tax rate of 37% to rise back to its prior level of 39.6%. “When lawmakers are looking between sofa cushions for money, it’s a possibility,” says Brian Gardner, chief Washington policy strategist at Stifel.

The 2017 law nearly doubled the standard deduction, and the One Big Beautiful Bill Act would make that increase permanent. Both the House and Senate versions of the bill would add a temporary, extra standard deduction for seniors 65 and over —$4,000 in the House and $6,000 in the Senate—that would begin to phase out at incomes over $75,000 for individuals and $150,000 for married couples filing jointly.

This extra standard deduction is in lieu of Trump’s campaign promise to eliminate taxes on Social Security income. Lawmakers will try to retain this provision, but it could be in play if additional savings are needed, Gardner says.

Both the House and Senate proposed increasing the estate and gift tax exemption to $15 million per individual and $30 million for joint filers starting in 2026, indexed upward for inflation in subsequent years, and that is likely to remain in the final bill.

SALT

Trump’s 2017 law capped the state and local tax deduction at $10,000, and lifting it has become a major disagreement between the Senate and House Republicans from high-tax blue states. This deduction allows taxpayers who itemize their deductions to reduce their federally taxable income by the amount they pay on state and local income and property taxes—up to the limit.

Lawmakers in the House proposed raising that cap to $40,000 and would begin phasing it out at incomes of $500,000. The Senate version kept the $10,000 limit. A likely compromise may be for the final legislation to go with the $40,000 limit but to lower the income eligibility, Gardner says.

Both House and Senate proposals would curb the ability of so-called pass through business owners to bypass the SALT deduction, although they would limit it differently, says Garrett Watson, director of policy analysis for the Tax Foundation.

No Taxes on Tips and Overtime

Both House and Senate versions of the legislation temporarily deliver on Trump’s campaign promise to eliminate income taxes on tips and overtime pay. The exemption would be structured as a tax deduction through 2028, and the Senate version would phase out eligibility at over $150,000 for an individual and $300,000 for joint filers. The Senate would allow deductions of up to $25,000 of tip income and $12,500 of overtime income for individuals.

Like the extra standard deduction for seniors, this provision will likely be a priority for lawmakers, although it’s possible it will get scaled back in the final bill to realize more savings, Gardner says.

Municipal Bond Income

Neither the House nor the Senate proposal changed the current tax exemption of municipal bond income. However, if lawmakers need to find additional revenue sources, there’s an outside chance that limitations on the tax exemption could be added to the final bill, analysts have said.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com