Trump’s 2026 Budget Proposal: 7 Things Taxpayers Need To Know
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Josephine Nesbit
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Levi Leidy
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President Trump’s 2026 budget proposal, dubbed the “One, Big, Beautiful Bill,” is a sweeping fiscal plan that aims to reshape federal spending and tax policy. The proposal, which has already passed the House, has stirred up plenty of debate on both sides of the aisle.
“At a high level, the proposal includes $163 billion in federal spending cuts, mostly hitting non-defense programs, and a fresh round of tax changes aimed at extending and expanding the 2017 Tax Cuts and Jobs Act,” Paul Miller, managing partner and CPA at Miller and Company LLP, wrote in an email. “While the messaging frames it as pro-growth and middle-class friendly, there are winners and losers depending on where you sit financially.”
Here are seven key takeaways taxpayers need to know.
Extension of the 2017 Tax Cuts and Jobs Act
The 2017 Tax Cuts and Jobs Act (TCJA) was a major overhaul of the U.S. tax code that lowered most individual income tax rates, nearly doubled the standard deduction and expanded the child tax credit. Many of these provisions were set to expire at the end of 2025.
“By making the individual tax cuts from the TCJA permanent, tax rates would remain at their current lows and the expanded deductions/credits would continue. This keeps some taxpayers’ bills lower in the near term, but also adds significantly to the long-term deficit in a major way,” explained Nik Agharkar, Esq., owner and managing member of Crowne Point Tax.
The bill also includes a temporary boost in the standard deduction — $1,000 for individuals, bringing it to $16,000, and a $2,000 increase for joint filers, bringing it to $32,000.
According to Agharkar, the middle class will avoid a sizable tax increase because key provisions like the 22% and 12% tax brackets — lowered from 25% and 15% pre-2017 — will remain in place. Other deductions, like for mortgage interest and state taxes, won’t be subject to stricter limits.
High-income earners stand to gain the most, Agharkar continued. The top rate would continue to be 37% instead of returning to 39.6% and the estate tax exemption would be permanently doubled. For businesses, the 20% pass-through business income deduction means owners of LLCs and S-Corps can write off a fifth of their income.
Elimination of Taxes on Tips, Overtime and Social Security Benefits
The proposal also mentions the elimination of taxes on tips, overtime pay and Social Security benefits.
“This proposal is aimed at boosting take-home pay for service and hourly workers, and would exempt all or a portion of these income types from federal taxation,” Laurie Smith, tax partner at Wiss & Company, wrote in an email. “This proposal is temporary and includes income limitations.”
But while these may appear beneficial, experts warn of potential challenges in the future.
“While these measures appear beneficial on the surface, they are projected to contribute between $5 and $11 trillion to the national debt over the next decade,” George Carrillo, CEO of the Hispanic Construction Council (HCC), former director of social determinants of health for the state of Oregon and former Democratic candidate for Governor of Oregon, pointed out.
Senior Bonus
Seniors 65 and over with limited income will see a new temporary $4,000 deduction, called a “bonus” in the legislation, CNBC reported. This is available whether they take the standard deduction of itemize their returns.
The provision would apply to tax years 2025 through 2026 and would phase out for single filers with more than $75,000 in modified adjusted gross income or $150,000 for joint filers.
This would help lower-income seniors, but Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, explained to CNBC that it’s not a life-changing amount. A senior who brings in roughly $50,000 per year would see their taxes reduced by a little under $500 per year.
Changes to the State and Local Tax Deduction Cap
One of the most closely watched components of the proposal is how the administration will address potential changes to the state and local tax (SALT) deduction cap. As it stands today, the proposal would raise the $10,000 cap to $30,000 for joint filers with modified adjusted gross income under $400,000. Once it exceeds that amount, the cap would be reduced but not below $10,000.
This would be a significant benefit to taxpayers living in high-tax states like New York or California.
“This has been a point of contention for lawmakers from high-tax states — they want to see a full repeal of the cap,” Smith explained. “Efforts to raise or repeal the SALT deduction cap aim to provide meaningful tax relief to residents in high-tax states, but they must be carefully weighed against the potential to significantly increase the federal deficit.”
Expansion of the Child Tax Credit
The child tax credit (CTC) in the 2017 TCJA temporarily doubled from $1,00 to $2,000, but the proposal would make this permanent and expand it further, increasing it from $2,000 to $2,500 per child until reverting back to $2,000 after 2028 and adjusting for inflation. There will also be stricter identification requirements to claim the credit, according to Smith.
MAGA Savings Account
Another family focused proposal is the creation of MAGA savings accounts, short for Money Account for Growth and Advancement. “These accounts would offer tax-advantaged savings options for middle-income families, similar to Roth IRAs or HSAs, but with broader usage flexibility,” Smith noted.
Funds could be used toward education, similar to a 529 plan, but could also be used for starting a business or buying a home in the future. However, it would not benefit from tax-free withdrawals like the 529 plan.
Spending Cuts
“The budget proposes large cuts to Medicaid, food assistance and education, with work requirements attached to some benefits,” Miller wrote. “The IRS would also see a significant budget cut, which might sound good at first blush but could slow down processing and enforcement.”
The cuts would primarily affect low-income households. “Housing Choice Vouchers, public housing funds, HOME grants and heating assistance (LIHEAP) are all on the chopping block. For a low-income renter, the new two-year cap on rental assistance could be life-changing,” Agharkar warned.
This would impact middle-class Americans more indirectly. “If federal support for affordable housing and infrastructure is withdrawn, state and local governments may raise taxes or fees to try to fill the gap,” Agharkar noted. “Property taxes, sales taxes or local levies could increase so that cities can fund housing initiatives or community development projects that used to be federally financed.”
Wealthy individuals don’t rely on these programs, but Agharkar pointed out that they’re still stakeholders in communities and the economy. An overlooked impact is the real estate market and employers.
“Cuts to rental assistance and home-building grants could lead to higher rents and housing shortages at the lower end of the market,” he added. “In turn, this can spur housing instability that creeps up the income spectrum.”
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