The United States has passed a law that will boost household incomes in early 2026 through permanent tax cuts, expanded deductions, and new targeted incentives, Reuters reports.
According to Reuters, the law makes permanent the lower individual and business income tax rates introduced under former President Donald Trump’s 2017 Tax Cuts and Jobs Act, which were previously due to expire at the end of 2025. The legislation also extends the standard deduction, increases the estate tax exemption from $14m to $15m, and expands the alternative minimum tax exemption.
“The law makes permanent the lower individual and business income tax rates in Trump’s 2017 Tax Cuts and Jobs Act that were due to expire at the end of the year. It also extends the standard deduction in that law and extends and expands the alternative minimum tax exemption and raises the estate tax exemption from $14m to $15m,” Reuters reports.
New provisions under the law will exempt up to $25,000 in tipped income from taxes until 2029, with the benefit phasing out for those earning more than $150,000, Reuters reports. Overtime pay up to $12,500 is also tax-exempt for qualifying workers, while seniors aged 65 and older can claim a new deduction of up to $6,000.
“Exempts taxes on up to $25,000 in tipped income until 2029. This tax break phases out for people who earn more than $150,000 and does not apply to all tips; for example, automatic service charges applied to large groups at restaurants are excluded, as are tips received for “pornographic activity”.”
The law provides additional relief by creating a tax break for up to $10,000 in interest payments on U.S.-assembled auto loans and expanding the deduction for state and local tax payments from $10,000 to $40,000 until 2029, benefiting homeowners in high-tax states, according to Reuters.
Business tax incentives are substantial, Reuters notes, with permanent lower corporate rates, full expensing of qualifying equipment and research and development costs, and relaxed limits on interest deductions. Pass-through businesses such as law firms, restaurants, and private-equity firms can deduct up to 20 per cent of income, reducing their effective tax rates.
Experts cited by Reuters suggest the combination of individual and business tax breaks could provide a significant boost to household war chests through larger refunds during the filing season and higher take-home pay as paycheck withholding is adjusted.
