Republican Congress members have proposed new tax breaks on income from tips, overtime pay, senior citizens, private school tuition, and state and local taxes for the 2026 federal budget on 12 May 2025.

The package also proposes tax reductions while imposing stricter requirements on healthcare benefits for low-income individuals. However, it would not raise taxes on the wealthiest Americans.

It seeks to make permanent the tax cuts introduced under the 2017 Tax Cuts and Jobs Act, enacted during Donald Trump’s first term. These cuts, currently set to expire this year, would remain in place under the new plan.

The proposal seeks to raise the cap on state and local tax deductions from the current USD 10,000 to USD 30,000. This change is likely to impact states with high taxes like New York, New Jersey, and California.

The budget would allow up to USD 5 billion annually in tax-free donations to scholarship funds for private and religious schools. It would also exempt some tipped income, overtime pay, and interest on loans for domestically made cars from taxes. Senior citizens would get a USD 4,000 deduction, and new “MAGA accounts” would let families save up to USD 5,000 per year tax-free for college, home payments, or other costs.

The plan aims to expand deductions for families with children, certain multinational corporations, and unincorporated businesses.

Meanwhile, universities would face increased taxes on their endowments, rising from 1.4% to 21%.

That lost revenue will be partly offset by new Medicaid restrictions and other spending cuts totalling USD 912 billion over the next decade.

House Speaker Mike Johnson has expressed his intention for the Chamber to pass the bill ahead of the US Memorial Day holiday on 26 May 2025.

Earlier, on 25 April 2025, the New York Times reported that the Trump Administration is planning to cut billions from child care, health research, education, and housing programmes in its 2026 budget proposal.  On 2 May 2025, the administration proposed USD 163 billion in budgetary cuts for the 2026 federal budget.