Trump’s Income Tax Plan: Will You Pay More or Less?

Trump is back in the White House—and taxes are back on the table.

With his re-election in 2024, President Donald Trump has reignited one of the biggest financial debates in America: what happens next to your federal income taxes. At the heart of it? The Trump tax cuts of 2017, many of which are set to expire at the end of 2025 unless Congress intervenes.

That’s why lawmakers, economists, and everyday taxpayers are laser-focused on Trump’s latest income tax plan. The proposal outlines sweeping changes to the tax code, including new tax breaks, potential spending cuts, and an overhaul of how the federal government collects revenue.

With a divided Congress, GOP momentum in the House and Senate, and growing debate over how to fund Medicare, Social Security benefits, and national programs, the stakes couldn’t be higher.

If you’ve been wondering whether you’ll pay more or less in 2025, you’re not alone—and we’ve got answers.

What is Trump’s income tax plan (2025 edition)?

In his second term, President Trump is advancing a comprehensive tax reform agenda aimed at extending and expanding the provisions of the 2017 Tax Cuts and Jobs Act (TCJA). This initiative seeks to solidify the tax changes before their scheduled expiration at the end of 2025, with significant implications for individual taxpayers, businesses, and the broader economy.​

Key proposals:

Extension of TCJA provisions

The administration proposes making the TCJA’s individual and estate tax cuts permanent, preventing a reversion to pre-2017 tax rates.

Elimination of taxes on specific income:

• Tips and overtime pay: Aims to exempt tips and overtime earnings from federal income tax, benefiting service industry and hourly workers.
• Social Security Benefits: Plans to remove federal income tax on Social Security benefits, reducing the tax burden for retirees.

Repeal of SALT deduction cap

Intends to eliminate the $10,000 cap on state and local tax (SALT) deductions, a provision originally instituted by the TCJA. ​

Corporate tax adjustments

Proposes reducing the corporate tax rate from 21% to 20%, with a further reduction to 15% for companies manufacturing within the U.S., to stimulate domestic production. ​

Tariff implementation

Introduces a universal baseline tariff of 10% on all imports, with higher rates on specific countries, including a 60% tariff on imports from China, aiming to protect domestic industries and generate revenue.

Legislative context

The House of Representatives has narrowly passed a budget framework facilitating the advancement of this tax plan through budget reconciliation, allowing it to proceed without the threat of a Senate filibuster. However, internal debates persist within the Republican Party regarding the plan’s fiscal implications, particularly concerning potential increases to the national debt.

Comparison to previous policies

Compared to the Biden administration’s tax policies, which focused on increasing taxes for higher-income individuals and corporations to fund social programs, Trump’s 2025 plan emphasizes tax reductions across various income levels and sectors, coupled with increased tariffs to offset revenue losses. This marks a significant shift in federal tax policy direction, with debates ongoing about the long-term economic impacts.​

Who could pay less under Trump’s plan?

President Trump’s tax proposals aim to extend and expand the 2017 Tax Cuts and Jobs Act (TCJA), offering potential benefits to various groups:​

High-income earners

• Extension of TCJA provisions: The plan seeks to make permanent the individual tax cuts from the TCJA, which lowered tax rates across income brackets. Without extension, these provisions are set to expire at the end of 2025, potentially increasing taxes for many. 
• Estate tax repeal: Proposals include a complete repeal of the estate tax, which would primarily benefit high-net-worth individuals. The TCJA had previously doubled the estate tax exemption, and its repeal would further reduce tax liabilities for wealthy estates. ​

Small business owners and pass-through entities

• Section 199A deduction: The plan proposes extending the 20% deduction for qualified business income for pass-through entities like sole proprietorships, partnerships, and S-corporations. This deduction, introduced by the TCJA, is currently set to expire at the end of 2025.
• Corporate tax rate reduction: A reduction in the corporate tax rate from 21% to 20%, with a further decrease to 15% for domestic manufacturers, is proposed to enhance competitiveness and stimulate economic growth. ​

Residents in high-tax states

• SALT deduction cap repeal: The $10,000 cap on state and local tax (SALT) deductions, implemented by the TCJA, is targeted for repeal. Removing this cap would particularly benefit taxpayers in states with higher local taxes.

Potential economic impact

Supporters argue that these tax changes could stimulate economic growth. The Tax Foundation estimates that making the TCJA provisions permanent could boost long-run GDP by 1.1%, although it would also increase the federal deficit by $4.5 trillion over the next decade. ​

Who might pay more under Trump’s plan?

While the Trump administration’s 2025 tax proposals aim to extend and expand the 2017 Tax Cuts and Jobs Act (TCJA), certain groups may experience increased tax burdens or reduced benefits:​

Middle-class families

• Child Tax Credit (CTC) reduction: If the TCJA provisions expire without extension, the CTC would revert from $2,000 to $1,000 per qualifying child, and income thresholds would decrease to $75,000 for individuals and $110,000 for married couples. This change would reduce benefits for many middle-income families. 
• Standard deduction decrease: The expiration of TCJA provisions would also halve the standard deduction, increasing taxable income for many households. ​

Potential reintroduction of the Alternative Minimum Tax (AMT)

• AMT Impact: Without legislative action, the AMT exemption amounts could revert to pre-TCJA levels, potentially subjecting more taxpayers to this parallel tax system designed to ensure that high-income individuals pay a minimum amount of tax. ​

Concerns over tax burden shifts

Democratic lawmakers and some economists express concerns that the proposed tax changes could disproportionately benefit higher-income individuals while increasing the tax burden on middle- and lower-income families. They argue that the combination of reduced credits, potential deduction limitations, and other changes may lead to a less equitable tax system. ​

What happens if the 2017 tax cuts expire?

The 2017 Tax Cuts and Jobs Act (TCJA) introduced significant changes to the U.S. tax code, many of which are set to expire at the end of 2025. If Congress does not act to extend these provisions, several key changes will take effect:​

Reversion to pre-TCJA tax rates

• Individual income tax rates: Tax rates would revert to their pre-TCJA levels, with the top marginal rate increasing from 37% to 39.6%. Other brackets would also see increases; for example, the 22% bracket would rise to 25%, and the 24% bracket to 28%. ​
• Standard deduction: The nearly doubled standard deduction would be reduced by approximately half, increasing taxable income for many filers. ​Tax Foundation
• Child Tax Credit (CTC): The CTC would decrease from $2,000 to $1,000 per qualifying child, and the income thresholds for phaseouts would lower, reducing eligibility for many families. 

How does all this impact expats?

President Trump’s 2025 tax proposals could significantly affect U.S. expatriates, particularly concerning taxation on foreign-earned income and eligibility for certain tax credits.​

Proposed shift to residence-based taxation

Currently, the U.S. taxes its citizens on worldwide income, regardless of residency. President Trump has pledged to end this practice, advocating for a shift to residence-based taxation. This change would mean that U.S. citizens living abroad would be taxed only on income earned within the U.S., aligning with the tax systems of most other countries. Such a move could simplify tax obligations and reduce the risk of double taxation for expatriates.

Foreign Earned Income Exclusion (FEIE) adjustments

For the 2025 tax year, the FEIE allows qualifying individuals to exclude up to $130,000 of foreign-earned income from U.S. taxation. This exclusion is adjusted annually for inflation.

Child Tax Credit (CTC) considerations

The CTC remains at $2,000 per qualifying child for 2025. However, expatriates who utilize the FEIE may find themselves ineligible for the refundable portion of the CTC, known as the Additional Child Tax Credit. This is because excluding income under the FEIE can reduce taxable income below the threshold needed to claim the refundable credit.

Ongoing filing requirements

Despite potential changes, U.S. citizens living abroad are still required to file annual tax returns, including reporting foreign bank accounts through the Foreign Bank Account Report (FBAR) if thresholds are met. These obligations remain in place until any legislative changes are enacted.​

What about business taxes?

President Trump’s 2025 tax proposals include significant changes to business taxation, aiming to stimulate economic growth but also attracting criticism over potential benefits to large corporations.​

Corporate tax rate adjustments

The corporate tax rate, reduced from 35% to 21% under the 2017 Tax Cuts and Jobs Act (TCJA), remains a focal point. While President Trump has not made a definitive decision, discussions are ongoing about potentially lowering the rate further to 17% or 18% to encourage investment and job creation. Critics argue that such reductions may disproportionately benefit large corporations and contribute to income inequality.

Pass-through income and small business implications

The Section 199A deduction, allowing pass-through entities like sole proprietorships, partnerships, and S corporations to deduct up to 20% of qualified business income, is set to expire at the end of 2025. President Trump’s plan includes making this deduction permanent, which supporters claim would bolster small businesses and spur economic growth. However, opponents caution that the benefits may skew towards higher-income individuals and larger pass-through entities.

Impact on startups and S corporations

Startups and S corporations stand to gain from the proposed extensions and reductions in business taxes. Proponents argue that lower tax burdens could free up capital for reinvestment and expansion, fostering innovation and job creation. Nonetheless, there is concern that without targeted measures, the advantages may be unevenly distributed, favoring more established firms.​

Democratic opposition and concerns

Democratic lawmakers have expressed strong opposition to the proposed business tax changes, labeling them as “corporate giveaways” that could exacerbate the federal deficit and neglect the needs of working-class Americans. They advocate for a more equitable tax system that ensures corporations contribute a fair share to public revenues. ​

What it means for you: How to prepare

President Trump’s proposed tax changes haven’t become law—but U.S. expats should still pay attention. From potential shifts in tax provisions to changes in international trade policy, staying informed now can help avoid surprises later.

Here’s what to keep in mind:

Residence-based taxation could be on the table

Trump has voiced support for ending double taxation of Americans abroad, possibly replacing the current system with residence-based taxation. If adopted, this would exclude most foreign income from U.S. taxes—making much of it effectively tax-free. This would be a significant change for expats, but so far, it’s only a proposal.

Key tax provisions may shift

Changes to the Foreign Earned Income Exclusion (now $130,000 for 2025), foreign tax credits, and other expat-related tax provisions are all being debated. If you rely on specific tax deductions or exclusions, stay up to date—especially if you’re self-employed or have income from multiple countries.

No changes yet to IRS filing requirements

Expats still need to file an annual U.S. tax return, report foreign financial accounts (FBAR), and comply with FATCA reporting rules. Until Congress passes legislation, all current IRS requirements remain in effect.

Trump tariffs and trade war tensions could affect expats indirectly

New or expanded tariffs—especially those targeting China and the EU—may raise prices on imported goods abroad or affect the global economy. While not a tax change per se, ripple effects from a renewed trade war could impact your cost of living or investment portfolio.

No need to panic, but stay proactive

You don’t need to overhaul your entire tax strategy right now. But you should track developments closely—especially if you’re making big financial decisions, like launching a business, selling property, or moving to a new country.

Stay informed, stay ready

With Trump back in office and major tax changes looming, the future of the U.S. tax code is anything but settled. Whether it’s the expiration of key provisions, the return of Trump tariffs, or shifting tax deductions, one thing is clear: waiting until tax season to react could cost you.

For U.S. expats, the smartest move is to plan now—before the laws change. A proactive strategy today means fewer surprises (and smaller tax bills) tomorrow.Bright!Tax works exclusively with American expats to help you prepare for what’s coming, protect your income, and stay ahead—no matter how the tax code shifts. Reach out today for a personalized plan.

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