A sweeping new piece of legislation has emerged, promising significant changes to numerous tax and assistance programs, which could impact the financial landscape for American citizens. This legislation creates a new children’s savings account, set to start with children born between 2025 and 2028. It creates a new unlimited tax deduction for interest on car loans, while slashing food aid for families. The legislation would make a number of big tax changes. These include limiting estate taxes and repealing selected consumer tax credits.
One of the most exciting provisions in the legislation is the establishment of a children’s savings account. Each newborn between 2025 and 2028 will have a one-time federal contribution of $1,000 deposited into their account! We hope this creative initiative can both incentivize savings and help establish healthy financial legacies for generations to come.
The new bill creates a new car loan interest tax deduction. They allow qualified households to now deduct interest on new auto loans up to $10,000 annually from their taxable income. This would offer significant savings for families seeking to buy vehicles during these times of high inflation.
The legislation goes a fairly unprecedented step in the other direction by eliminating about $1 trillion from Medicaid. This estimate is based on Congressional Budget Office figures. It slashes food support for families by starving the Supplemental Nutrition Assistance Program (SNAP). This program has been an important lifeline for low-income families.
The bill further repeals a number of consumer tax credits related to clean energy investments. Households that purchase or lease new EVs previously benefited from a $7,500 federal tax credit. Purchasers of used EVs got a $4,000 credit. These modifications will disincentivize consumers’ adoption of clean energy technologies.
To help ensure gig economy workers don’t fall behind, the legislation features a new temporary federal income tax deduction. You can receive up to $25,000 annually based on eligible tip income. It further provides a bigger deduction for pass-throughs, which include small businesses like contractors and freelancers.
The legislation makes important changes to existing tax structures. The estate and gift tax exemption will increase to $15 million per person in 2026. Married couples filing jointly will benefit from an even bigger exemption of $30 million, plus inflation adjustments. As Howard Gleckman pointed out, if we just raised the cap we’d be showering upper middle-income people with even more big tax breaks.
The new proposal comes with some very promising work federal rules. These modifications will be notable for beneficiaries from 19 through 64 years old who request coverage via ACA expansion categories. These people need to work a minimum of 80 hours a month. For many, this onerous requirement will have a chilling effect on their eligibility for health coverage.
Families with eligible children under age 17 can still claim the child tax credit in full. In 2025, they’ll get at least one extra credit — more than $1,700. On top of that, school voucher fund donors can already receive a 100% credit on their donations exceeding $1,700 beginning in 2027.
Employers can donate matching contributions up to $2,500 to their employees’ directly deposited savings accounts. This employer contribution will not be added to the employee’s gross taxable income. For Americans aged 65 and older, the bill offers an above-the-line tax deduction for retirees. Persons 65 years or older receive an alternative strengthened temporary deduction.
Third, students have already begun to notice big changes to their repayment options on federal student loans. The Repayment Assistance Plan (RAP) is an income-based repayment plan. It won’t be available at all for new borrowers until mid-2026.
To understand the financial ramifications of these major changes, check out Jonathan Smoke’s Mental health and well being. He stated, “The math basically says you’re talking about [financial] benefit of $500 or less in year one,” highlighting the limited immediate impact on many families.
Supporters counter that legislation’s purpose is to encourage new forms of savings and investment by young Americans. They still feel there are better options out there. Jessica Dickler wrote that “Trump accounts” would expose more Americans to the wealth-building magic of compound interest. She noted that advocates say the 529 college savings plan would have major benefits. They provide significant tax advantages and higher contribution limits.