Overhaul of Trump-Era Tax Law May Result in Bigger Refunds

• Last-minute changes to President Trump's 2017 Tax Cuts and Jobs Act may result in larger tax refunds for millions of Americans.

• The proposed revision targets the state and local tax deduction (SALT), previously capped at $10,000, potentially raising it to $20,000 for married couples retroactively for the 2023 tax year.

• If approved, millions of married taxpayers could see increased 2024 tax refunds. The adjustment aims to address criticisms of the $10,000 cap, which impacted both wealthy homeowners and middle-class taxpayers in regions with rising property taxes. The estimated cost of the change is $12 billion, compared to the $69 billion cost of the SALT deduction in 2017. The proposed SALT Marriage Penalty Elimination Act would apply only to the 2023 tax year for couples with AGIs under $500,000, returning to a $10,000 limit after 2023.

Millions of Americans may receive larger tax refunds this year as a result of a last-minute revision to a tax provision included in President Donald Trump's 2017 Tax Cuts and Jobs Act.

The state and local tax deduction, sometimes known as the SALT deduction, which was capped at $10,000 in Trump's flagship tax package, is in question. A recent proposal, however, would increase the maximum to $20,000 for married couples, retroactively applying to the tax year 2023. Millions of married taxpayers may receive larger 2024 tax refunds if the idea is approved.

Before the SALT deduction cap, taxpayers could deduct all of their local and state taxes from their federal taxes. This strategy has drawn criticism from certain lawmakers who believe that it only benefits rich homeowners in high-tax jurisdictions like California and New York. However, several legislators also note that middle-class homeowners who reside in areas where property taxes are rising are being negatively impacted by the $10,000 restriction.

In addition, some people see the $10,000 maximum as a marriage penalty because it affects both married and unmarried taxpayers financially. Married couples filing jointly benefit from greater tax provisions, such as standard deductions and tax rates, because their tax returns represent two people's incomes.

During a Thursday committee hearing on the proposed tax changes, Representative Mike Lawler, a Republican from New York and the bill's introducer, asserted, "This is a pro-family tax measure that rights a wrong, and this ultimately is about fairness." Lawler emphasized the impact of higher housing costs and inflation on his constituents, stating that providing tax relief could assist many individuals in his region and benefit taxpayers nationwide.

The estimated cost of doubling the state and local tax (SALT) cap to $20,000 for married filers is approximately $12 billion in reduced federal tax revenue, according to a recent estimate from the University of Pennsylvania's Penn Wharton Budget Model. In comparison, the SALT deduction cost the federal government $69 billion in tax revenues in 2017, the year preceding the implementation of the $10,000 limit, as reported by the Peter G. Peterson Foundation.

How SALT Works

The SALT Marriage Penalty Elimination Act, as it is now being proposed, would increase the $10,000 maximum on state and local tax deductions to $20,000, but only for the tax year 2023.

All married couples with adjusted gross incomes less than $500,000 in 2023-all except the highest-earning couples in the country-would be covered by the adjustment when it comes to joint returns.

Should it become law, married couples would be able to deduct twice as much from their SALT for the current tax year, which runs from January 29 to April 15.

Like many other Tax Cuts and Jobs Act provisions, the SALT ceiling would return to $10,000 per filer after 2023, regardless of filing status, and would remain thus until the end of 2025.