Borrowers in Default on Federal Student Loans Face Imminent Collection Efforts
On April 21, 2025, the U.S. Department of Education announced that it will resume collections on defaulted federal student loans starting May 5, 2025. The federal government hasn’t collected on defaulted loans since March 2020. Here is some background followed by answers to questions about the new policy.
A history of payment pauses and court challenges
The coronavirus pandemic ushered in a series of student loan payment pauses for federal loan borrowers starting in March 2020. In August 2022, then-President Biden signed an executive order canceling up to $10,000 of federal student loan debt ($20,000 for Pell Grant recipients) for certain borrowers, an order that was subsequently struck down by the U.S. Supreme Court. In June 2023, Congress officially ended the student loan payment moratorium, and the Department of Education announced that federal student loan payments would resume in October 2023. Around the same time, the Department created the Saving on a Valuable Education (SAVE) Repayment Plan, which offered borrowers lower monthly payments and a faster path to loan forgiveness. After SAVE passed, it faced multiple legal challenges and was eventually blocked by a federal appeals court in August 2024, leaving many borrowers in repayment limbo.
To whom does this new enforcement policy apply?
In its April 21 announcement, the Department of Education noted the following statistics:
- 42.7 million federal student loan borrowers owe more than $1.6 trillion in student debt
- More than five million borrowers have not made a monthly payment in over 360 days and are in default
- Four million borrowers are in late-stage delinquency (91–180 days)
The new collections policy technically applies to all 42.7 million borrowers but will most immediately affect the five million borrowers who are currently in default and the four million borrowers who are close to default.
Note: Different federal student loans may have different rules on when default status is reached. You can visit the federal student aid website for more information.
What will happen to borrowers in default?
Starting May 5, 2025, the Education Department will refer all borrowers whose federal student loans are in default to a federal debt collection service (the Treasury Offset Program) administered by the Treasury Department. Before that date, all borrowers in default should receive email communications from the Office of Federal Student Aid (FSA) encouraging them to start making payments, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
Borrowers (whether student or parent) who are unable to make payments after “sufficient notice and opportunity” will be subject to involuntary collections, which could include wage garnishment. The FSA office expects to send required notices to borrowers about wage garnishment later this summer. Wage garnishment means borrowers in default could see automatic deductions from their paychecks to cover loan payments. Borrowers delinquent on their student loans (missing a payment for 90 days or more) also risk a negative impact to their credit score, which can make it harder to rent an apartment (if a credit check is required) or obtain a credit card, car loan, or mortgage.
Over the next two months, the FSA office plans to send borrowers ongoing email communications with additional information and resources, including an enhanced loan simulator tool, extended call times at loan servicers, and a streamlined income-driven repayment process that will shorten enrollment times and eliminate the need for annual income recertification. More information will be available on the federal student aid website in the coming weeks.
Source: U.S. Department of Education, April 21, 2025
REAL ID Deadline Almost Here
After years of numerous delays, the REAL ID enforcement deadline is scheduled for May 7, 2025. 1
What is a REAL ID?
A REAL ID is a type of enhanced identification card that is signified by a star marking in the upper top portion of the card. The REAL ID Act, passed by Congress in 2005, set minimum security standards for state-issued driver’s licenses and identification cards. Everyone who is at least 18 years old will need a REAL ID-compliant driver’s license or identification card or another form of identification that is accepted by the Transportation Security Administration (TSA) for domestic air travel and to enter certain federal facilities.
Other TSA-acceptable documents are active passports, passport cards, or Global Entry cards. While standard driver’s licenses will no longer be a valid identification for TSA purposes, enhanced driver’s licenses from certain states are TSA-acceptable alternatives.
Although the TSA has announced that federal agencies are allowed to phase in their enforcement of the REAL ID requirement, travelers who don’t have a REAL ID by the May 7 deadline will face additional screening measures and possible delays at airport security checkpoints. You can visit the TSA website at tsa.gov for updates and information.
Finally, when traveling internationally, you will still need your passport for identification purposes, including travel to Canada or Mexico.
How do you get a REAL ID?
The U.S. Department of Homeland Security (DHS) oversees the enforcement and implementation of the REAL ID Act, but each state’s driver’s licensing agency has its own process for issuing REAL ID-compliant licenses/identification cards.
To obtain a REAL ID, you will need to provide documentation that shows your:
- Full legal name, date of birth, proof of lawful presence (e.g., U.S. passport, birth certificate)
- Social Security number (some states may not require physical documentation of your Social Security number)
- Two proofs of address of principal residence (e.g., driver’s license, utility bill)
If you have had a name change (e.g., marriage, divorce, or court order), you will also need to bring in documentation that demonstrates proof of your name change. States may impose additional requirements, so be sure to contact your state’s driver’s licensing agency for more information.
1) U.S. Department of Homeland Security, 2025
New Tariffs Drive Market Volatility
April 2, 2025, President Trump announced sweeping tariffs on imported goods that were significantly larger and different in structure than expected. The announcement was carefully timed to coincide with the close of the New York Stock Exchange to avoid immediate market volatility. But over the next two days, the S&P 500 — generally considered representative of the U.S. stock market — plunged by 10.5%. The Dow Jones Industrial Average lost 9.3%, and the tech-heavy NASDAQ index dropped 11.4%.1 The two-day rout erased $6.6 trillion in market value, the largest two-day shareholder loss in U.S. history.2
Market volatility continued on Monday, April 7, with prices swinging widely throughout the day, but the final results were more moderate. The S&P 500 dropped slightly by 0.23%, the NASDAQ was up slightly by 0.10%, and the Dow fell 0.91%.3
Obviously, a quick market drop is cause for concern, but it’s important not to overreact and to maintain a steady eye on long-term goals. It may be helpful to consider the causes of the current market volatility along with a longer-term view of market trends.
A surprising approach
The tariffs announced on April 2 were promised as a program of “reciprocal tariffs,” which are traditionally defined as matching the tariffs other countries levy on U.S. goods and theoretically leveling the playing field. Determining reciprocal tariffs typically requires exhaustive analysis of a complex web of global trade rules on tens of thousands of products. Investors hoped for a moderate, measured program, and it’s notable that the S&P 500 actually rose steadily in the three trading days before the announcement.4
The tariffs the president announced took investors by surprise. They were not reciprocal tariffs by the traditional definition but rather based on the trade deficit in goods between the United States and a given country. Trade in services, in which the United States often has a surplus, was not considered.
Specifically, the tariff was calculated based on the ratio of the country’s 2024 goods trade deficit with the United States to the total value of its goods exports to the United States, multiplied by one half. Thus, if Country A sold $200 billion in goods to the United States and bought $100 billion in U.S. goods, the deficit was $100 billion, and the tariff was calculated as $100B/$200B = 50% x ½ = 25% tariff. Nearly, all countries were assessed a minimum 10% tariff, regardless of the balance of trade, but Canada and Mexico, which already have substantial tariffs due to previous actions, are exempt from the new round. Other exceptions include Russia and North Korea, which are under trade sanctions.5
The Trump administration maintains that this calculation will close trade deficits, but most economists believe that such deficits are not necessarily bad or the result of unfair trading practices — and the calculation resulted in unexpectedly high new tariffs.6 The European Union, which provides almost one-fifth of U.S. imports, was assessed a 20% tariff, while China was assessed 34% on top of the recent 20% boost and other tariffs already in place. Other important sources of imports with high new tariffs include Vietnam (46%), Taiwan (32%), India (27%), South Korea (26%), and Japan (24%).7 Tariffs on most countries are now higher than the tariffs they charge for U.S. goods, and even countries that buy more U.S. goods than they sell, such as Australia and Argentina, will still pay the 10% minimum tariff.8–9
Concerns and potential revenue
There is an adage that the market doesn’t like surprises, and part of the market reaction was due to the unusual approach, with an untried calculation, higher-than-expected tariffs on many trading partners, and a minimum tariff on nearly every country of the world. But there is also a fundamental concern that these tariffs, on top of previously levied tariffs, will increase consumer prices to a level that seriously slows consumer spending, the driving force of the U.S. economic engine. Higher import prices can also hurt U.S. companies that depend on imported materials and parts, while retaliatory tariffs and other economic sanctions could hurt U.S. companies that export goods and/or do business abroad.
On the other hand, the Trump administration’s stated goals are to stimulate U.S. manufacturing, address unfairness in international trade, and increase U.S. revenue, which could be used to decrease other taxes. Trump economic advisor Peter Navarro estimated that the tariffs could raise more than $6 trillion over ten years. This estimate is likely on the high end, because it assumes that tariffs, trade, and consumer behavior will not change. But revenue approaching that level could pay for extending the 2017 tax cuts, which are scheduled to expire at the end of 2025 and could decrease revenue by about $4.5 trillion over the next ten years if extended.10
Moreover, the tariffs as announced may be intended in part as a starting point for negotiations. President Trump and Vietnam’s leader, To Lam, have already begun discussions, with Lam offering to reduce his country’s tariffs on U.S. goods to 0% in return for reduction of the U.S. tariffs. It’s likely that there will be negotiations with many key U.S. trading partners as the tariff program evolves.11
Investing for the long term
Although it is impossible to predict the market, you can probably expect volatility for some time. The NASDAQ Index officially entered a bear market — a loss of at least 20% from a previous high — at the end of trading on April 4, while the S&P 500 Index — down more than 17% from its recent high — is approaching bear territory.12–13 While any substantial decline can be worrisome for investors, it’s important to remember that markets are cyclical. Regardless of the reasons for a downturn, the market has always bounced back. Here are some other considerations that may help provide perspective:
- After a down year in 2022, the S&P 500 gained 24.23% in 2023 and 23.31% in 2024, the largest two-year increase since 1998.14–15 Although 2025 has been rocky, the index set an all-time record on February 19, 2025, after the initial round of tariffs was announced.16 So the current market turmoil is coming after a period of unusual strength. While it may be disturbing to watch the value of your investments decline, the current drop is from a high level, and the current value of your portfolio might be similar to what it was at a time when the value seemed satisfying.
- The losses you see in your investment account are only paper losses until you sell. Panic selling locks in those losses. Historically, some of the best days of stock market performance have followed some of the worst days. No one can predict market direction, and pulling out of the market due to an emotional reaction can lead to missing gains on the way back up.
- A down market can offer buying opportunities, but no one knows when the market has reached bottom, so — as with selling — purchasing decisions should be made rationally based on a long-term strategy.
- Since 1928, the S&P 500 Index (including an earlier version) has returned an annual average of about 10%, but annual returns have varied widely.17 Over 97 years, there have been 65 positive years, 30 negative years, and two flat years.18
- During this same period, there have been 24 S&P 500 bull markets (not counting the current bull) and 23 bear markets. The average bull market lasted 1,102 days and had a positive return of 121.4%. The average bear market lasted 340 days and had a negative return of -36.8%.19 Put simply, bulls have lasted longer than bears, and bull gains have substantially eclipsed bear losses.
Past performance is not a guarantee of future results, but the clear message in these statistics is that it pays to be patient and stick to your long-term strategy. This is true during any period of market volatility, but the current situation — primarily driven by the reciprocal tariff regimen — is still so new and subject to change, it may be unwise to place too much emphasis on the initial market reaction. Even if the president maintains the current trade policy, the U.S. economy and the U.S. stock market have proven time and time again to be resilient and adaptable to changing economic conditions.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful. The S&P 500 Index is an unmanaged group of securities that is considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Actual results will vary.
1, 3–4, 13, 16) Yahoo Finance, April 7, 2025
2) Morningstar, April 4, 2025
5, 7, 9) The New York Times, April 4, 2025
6, 8) The Wall Street Journal, April 7, 2025
10) CNBC, April 2, 2025
11) The New York Times, April 6, 2025
12) Reuters, April 4, 2025
14) S&P Global Indices, 2025
15) MarketWatch, December 31, 2024
17) Investopedia, December 26, 2024
18) www.macrotrends.net, 2025
19) Yardeni Research, January 21, 2024
New Social Security Identity Verification Rule: Are You Affected?
The Social Security Administration (SSA) has announced that effective April 14, some individuals who want to claim Social Security benefits or change their direct deposit account information will need to visit a local Social Security field office to prove their identity in person.
According to the SSA, stronger identity verification procedures are needed to prevent fraud. The new rule is already causing confusion, in part because of its hasty rollout, so here are answers to some common questions and links to official SSA information.
Who will need to visit a Social Security office to verify their identity?
This new rule only affects people who don’t have or can’t use their personal my Social Security account. If you already have a my Social Security account, you can continue to file new benefit claims, set up direct deposit, or make direct deposit changes online — you will not need to visit an office.
You must visit an office to verify your identity if you do not have a my Social Security account and you are:
- Applying for retirement, survivor, spousal, or dependent child benefits
- Changing direct deposit information for any type of benefit
- Receiving benefit payments by paper check and need to change your mailing address
You don’t need to visit an office to verify your identity if you are applying for Medicare, Social Security disability benefits, or Supplemental Security Income (SSI) benefits — these are exempt from the new rule, and you can complete the process by phone.
If you’re already receiving benefits and don’t need to change direct deposit information, you will not have to contact the SSA either online or in person to verify your identity. According to the SSA, “People will continue to receive their benefits and on schedule to the bank account information in Social Security’s records without needing to prove identity.”1 There’s also no need to visit an office to verify your identity if you are not yet receiving benefits.
The SSA also announced that requests for direct deposit changes (whether made online or in person) will be processed within one business day. Prior to this, online direct deposit changes were held for 30 days.
What if you don’t have a my Social Security account?
You can create an account at any time on the SSA website, ssa.gov/myaccount. A my Social Security account is free and gives you online access to SSA tools and services. For example, you can request a replacement Social Security card, view your Social Security statement that includes your earnings record and future benefit estimates, apply for new benefits and set up direct deposit, or manage your current benefits and change your direct deposit instructions.
To start the sign-up process, you will be prompted to create an account with one of two credential service providers, Login.gov or ID.me. These services meet the U.S. government’s identity proofing and authentication requirements and help the SSA securely verify your identity online, so you won’t need to prove your identity at an SSA office. You can also use your existing Login.gov or ID.me credentials if you have already signed up with one of these providers elsewhere.
If you’re unable or unwilling to create a my Social Security account, you can call the SSA and start a benefits claim; however, if you’re filing an application for retirement, survivor, spousal, or dependent child benefits, your request can’t be completed until your identity is verified in person. You may also start a direct deposit change by phone and then visit an office to complete the identity verification step. You can find your local SSA office by using the Social Security Office Locator at ssa.gov.
To complete your transaction in one step, the SSA recommends scheduling an in-person appointment by calling the SSA at (800) 772-1213. However, you may face delays. According to SSA data (through February), only 44% of benefit claim appointments are scheduled within 28 days, and the average time you’ll wait on hold to speak to a representative (in English) is 1 hour and 28 minutes, though you can request a callback (74% of callers do).2 These wait times will vary, but are likely to get worse as the influx of calls increases and the SSA experiences staffing cuts.
What if your Social Security account was created before September 18, 2021?
Last July, the SSA announced that anyone who created a my Social Security account with a username and password before September 18, 2021, would need to begin using either Login.gov or ID.me to continue to access a my Social Security account. If you haven’t already completed the transition, you can find instructions at ssa.gov/myaccount.
How can you help protect yourself against scams?
Scammers may take advantage of confusion over this new rule by posing as SSA representatives and asking individuals to verify their identity to continue receiving benefits. Be extremely careful if you receive an unsolicited call, text, email, or social media message claiming to be from the SSA or the Office of the Inspector General.
Although SSA representatives may occasionally contact beneficiaries by phone for legitimate business purposes, they will never contact you by text message or social media. Representatives will never threaten you, pressure you to take immediate action (including sharing personal information), ask you to send money, or say they need to suspend your Social Security number. Familiarize yourself with signs of a Social Security-related scam by visiting ssa.gov/scam.
1–2) SSA.gov, 2025
Tariff Turmoil or Economic Signal? The Makings of a Stock Market Correction
The S&P 500 Index landed in correction territory after a swift three-week drop of more than 10% from its February 19 record high. The NASDAQ index suffered an official correction a week earlier, having fallen over several months from its most recent peak in December 2024.1
President Trump’s rapid, on-and-off implementation of tariffs and the escalating trade war it sparked unsettled the financial markets. Meanwhile, the U.S. economy, which had appeared to be pulling off a soft landing, began to flash warning signs.2
Tariffs taking effect
A tariff is a tax on imported goods that is used to help protect domestic industries from foreign competition, raise revenue, or as a tool in trade negotiations. Tariffs are a key component of the president’s trademark America First policy, as they are intended to incentivize businesses to produce goods in the United States.
New 20% tariffs on imported goods from China (now totaling about 30%) have already taken effect, along with a 25% tariff on all imported steel and aluminum. Threatened 25% tariffs on imports from Mexico and Canada were paused until April, which is when a round of reciprocal tariffs on specific U.S. trading partners could be announced.3
Canada and the European Union (EU) have responded with reciprocal tariffs on specific U.S. products, and Canadian shoppers are boycotting American-made goods.4 China imposed a retaliatory tariff of 15% on chicken, wheat, and corn and 10% on soybeans, pork, beef, and fruit, which could potentially cost U.S. farmers billions of dollars in reduced agricultural exports.5
Inflation and growth fears
If U.S. companies must pay a 25% tariff on imported goods, their actual costs may not increase by the full 25%, because a foreign exporter might lower its prices to remain competitive. Still, it could cost substantially more for U.S. manufacturers to buy widely used commodities (such as metal or lumber). The price of domestic supplies could rise as well due to less foreign competition, as would the price of products that are made in the United States from those materials.
By one estimate, the price of a new car sold in a U.S. showroom could rise by a startling $4,000 to $10,000 if threatened tariffs on Canada and Mexico take effect as scheduled.6 The National Association of Home Builders reported that tariffs could increase the cost to build a typical new home by $9,200.7
In the worst-case scenario, significant inflation could hurt consumers, reduce sales, squeeze corporate profits, and result in job losses, especially in industries that depend heavily on imports. The rising possibility of tariff-driven inflation is just one reason that some economists have started to downgrade their forecasts for economic growth.8
More cautious consumers
Measured by the Consumer Price Index, inflation slowed to 2.8% over the 12 months ending in February 2025.9 It could take time for tariff-driven price increases to show up on price tags and even longer before it would be evident in official inflation reports. Even so, the closely watched University of Michigan survey found that consumer sentiment fell sharply in March and participants expected inflation to run at 3.9% over the next five to 10 years, the highest reading in more than 30 years. This sudden decline in confidence coincided with a barrage of news about tariff actions and layoffs at federal agencies.10
Retailers, airlines, and restaurants have reported seeing a noticeable decrease in consumer demand. It appears that consumers have started to pull back, and some could be tapped out after enduring several years of higher prices. Consumer spending accounts for two-thirds of gross domestic product, so if a significant slowdown materializes, it could put the brakes on economic growth.11
Businesses under pressure
For several decades, much of the world — including the United States — supported free trade and globalization. Many companies manufacture products in other countries and/or source raw materials or components from all over the world. Reshaping complex supply chains isn’t likely to be a quick or painless task.
Some tariff threats may be dropped through negotiations, so it’s unknown which tariffs will stick for the long-term. Uncertainty may cause many businesses to hold off on capital investments and/or hiring plans until they have more clarity on tariff policies and the direction of the economy.12 Tariff-related costs that can’t be passed on to customers could cut into the earnings of publicly traded companies in upcoming quarters, a prospect that has likely triggered some of the recent market volatility.13
What’s an investor to do?
It’s natural to be concerned when the market drops, but it may help to keep in mind that investors have also benefitted from two years of extraordinary gains. Stocks on the S&P 500 Index provided a total return of 25% in 2024 and 26% in 2023.14
Stocks regained some losses in the days following the correction, but prices could continue to fluctuate while investors digest the potential impacts of shifting trade policies. Expecting volatility and maintaining a long-term perspective may help you avoid making snap decisions that could derail your investment strategy.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The S&P 500 Index is an unmanaged group of securities that is considered representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is no guarantee of future results. Actual results will vary.
1–2) The Wall Street Journal, March 17, 2025
3) Yahoo Finance, March 17, 2025
4) Business Insider, March 14, 2025
5) CNBC.com, March 12, 2025
6) The New York Times, March 14, 2025
7) National Association of Home Builders, March 17, 2025
8, 12) The San Diego Union-Tribune, March 13, 2025
9) U.S. Bureau of Labor Statistics, 2025
10) Yahoo Finance, March 14, 2025
11) CBSNews.com, March 17, 2025
13) Barron’s, March 17, 2025
14) Dow Jones Indices, 2025
Tariffs: How They Work and Potential Economic Effects
President Trump authorized an additional 25% tariff on all goods entering the United States from Canada and Mexico (except for a lower 10% tariff on energy resources from Canada) and an additional 10% tariff on all goods, from China on February 1, 2025. Nine days later, Trump authorized a 25% tariff on steel and aluminum, effective March 12, which strengthened and elevated tariffs levied by the first Trump administration in 2018.1 These were the opening salvos in what promises to be a period of aggressive moves that is likely to shake up the global trade environment.
A tariff is a tax on a particular class of imported goods or services that is typically designed to help protect domestic industries from foreign competition. However, the Trump administration is also using tariffs as leverage for other goals. The tariffs on Mexico and Canada — our two largest trading partners — were suspended for a month after both countries promised major initiatives to secure their U.S. borders against the flow of fentanyl and illegal immigrants.2 Despite these efforts, the tariffs went into effect on March 4. Canada quickly retaliated with 25% tariffs on about $100 billion of U.S. goods, while Mexico promised to announce retaliation measures on March 9.3
On the other hand, China — which exports some of the chemicals used to manufacture fentanyl — immediately responded to the February 1 action by raising its tariffs on selected U.S. exports by 10% to 15%.4 Trump added another 10% tariff on all Chinese goods, which also went into effect on March 4, and China shot back with new 10%–15% tariffs on U.S. agricultural goods as well as restrictions on certain U.S. companies.5
Background
Although the U.S. Constitution specifically grants Congress the power to levy tariffs (also called duties), Congress has delegated much of that authority to the President over the last 90 years. This has led to numerous trade agreements that have created a low-tariff, rules-based global trading structure, with tariffs applied on selected products. Over the past 70 years, tariffs have seldom accounted for more than 2% of federal revenue and were just 1.57% in FY 2024. Prior to the recent actions, about 70% of all foreign goods entered the United States duty-free.6
Who pays for tariffs?
Tariffs are collected by U.S. Customs and Border Protection at U.S. ports of entry. The tariff is paid by the U.S. company or individual who imports the goods. Put simply, if a U.S. company imports $1 million of foreign steel with a 25% tariff, that steel costs the company an additional $250,000 for a total of $1.25 million.
The U.S. company might then absorb all or part of the additional cost or pass it to consumers who buy products made from the steel. Alternately, the foreign steel exporter might lower its prices to maintain access to the U.S. market, in which case the U.S. company would still pay the 25% tariff, but the total price would not rise by the full 25% over the pre-tariff price.
The other factor in this equation, which is the traditional purpose of tariffs, is that the U.S. importer might buy steel from a U.S. manufacturer, thus avoiding the extra tax. The questions then are: 1) Will the U.S. manufacturer raise its price because it no longer must compete with cheaper imports? 2) Will there be enough U.S.-manufactured steel to meet demand?
Lessons from round one
There have been numerous studies of the 2018-19 tariffs, which were not as restrictive as the new program but offer some possible answers to these questions. Almost all the steel and aluminum tariff costs were passed directly to U.S. companies in the form of prices that rose by about 22% and 8%, respectively. However, many foreign producers received exemptions from the tariffs, and U.S. steel and aluminum production — which represented more than two-thirds of the U.S. market before the tariffs — grew moderately to meet demand, rising by an annual average of $2.8 billion over the period from 2018 to 2021. Even so, companies that had depended on cheaper imported metal struggled, and overall production of goods that use steel and aluminum decreased by an annual average of $3.4 billion.7
U.S. importers also bore near the full cost of the broader tariffs on Chinese goods but generally passed only part of the costs to consumers.8 However, a separate tariff on washing machines added $86 to the retail price of a washing machine and $92 to the price of a dryer, ultimately costing consumers over $1.5 billion.9 Broadly, a 2024 analysis found that the 2018–19 tariffs (many continued by the Biden administration), combined with retaliatory tariffs by other countries, reduced U.S. gross domestic product by a little more than 0.2% and cost about 169,000 full-time jobs.10
Reciprocal tariffs and de minimis suspension
Trump has also ordered a study of reciprocal tariffs, which would set tariffs based dollar-for-dollar on the tariffs each country charges on U.S. goods, as well as nontariff trade barriers. As with most issues related to tariffs, there are differing opinions on this. At best, reciprocal tariffs could lead to negotiating lower tariffs and removing barriers that prevent U.S. businesses from operating in a foreign country. At worst, they could lead to a global trade war, with ever-increasing tariffs and barriers.11
Along with the 10% tariff on Chinese goods, Trump excluded China from the de minimis provision of U.S. customs law that exempts goods valued at less than $800. This would make cheap goods from Chinese online retailers, which are often shipped directly to consumers, subject to existing tariffs plus the new 10% tariff. The exclusion was suspended on February 7 to give the U.S. Postal Service and Customs and Border Protection time to develop a plan to collect the tariffs.12 It’s unclear how this change will affect consumer prices, but processing could slow delivery times.13
Inflation
Most economists believe that tariffs cause inflation, and President Trump admitted there might be short-term price increases. The potential for tariff-driven inflation is of particular concern in the current economy; two recent surveys show a significant decline in consumer confidence due to inflation fears.14–15 The full economic impact will depend on how the tariff program plays out — how much is intended as a negotiating tool and how much turns into long-term policy. For now, it would be wise to maintain a steady course and keep an eye on further developments.
1) The White House, February 1 and 11, 2025
2) CBS News, February 3, 2025
3, 5) CNN Business, March 5, 2025
4) AP News, February 4, 2025
6) Congressional Research Service, January 31, 2025
7) U.S. International Trade Commission, May 2023
8) National Bureau of Economic Research, October 2019
9) University of Chicago, April 2019
10) Tax Foundation, February 13, 2025
11, 14) The Wall Street Journal, February 13, 2025
12) CNBC, February 7, 2025
13) AP News, February 5, 2025
15) CNN Business, February 25, 2025
Many 2017 Tax Act Changes Scheduled to Expire After 2025
The Tax Cuts and Jobs Act was signed into law in December 2017. The Act made extensive changes that affected both individuals and businesses. Most provisions were effective for 2018. Many individual tax provisions are scheduled to sunset and revert to pre-existing law after 2025 unless Congress acts. Some key provisions of the Act scheduled to sunset are discussed below. Comparisons below are generally for 2025 and 2026 as currently scheduled if Congress does not act.
Individual income tax rates
2025. There are seven regular income tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
2026. There would be seven regular income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
Personal exemptions, standard deduction, and itemized deductions
2025. Personal (and dependency) exemptions are not available.
You can generally choose to take the standard deduction or to itemize deductions. Additional standard deduction amounts are available if you are blind or age 65 or older. Standard deduction amounts are high.
Many itemized deductions are eliminated or restricted, but the overall limitation on itemized deductions based on the amount of your adjusted gross income does not apply.
- The deduction for state and local taxes is limited to $10,000 ($5,000 if married filing separately).
- The deduction for mortgage interest is available, but the maximum benefit is reduced for some individuals, and interest on home equity loans is deductible only if used for certain purposes.
- The deduction for personal casualty losses is eliminated unless the loss is incurred in a federally declared disaster.
2026. In general, personal (and dependency) exemptions would be available for you, your spouse, and your dependents. Personal exemptions would be phased out for those with higher adjusted gross incomes.
You would generally be able to choose to take the standard deduction or to itemize deductions. Additional standard deduction amounts would be available if you are blind or age 65 or older. Standard deduction amounts would be much lower.
Itemized deductions would include deductions for: medical expenses, state and local taxes, home mortgage interest, investment interest, charitable gifts, casualty and theft losses, job expenses and certain miscellaneous deductions, and other miscellaneous deductions.
Many itemized deductions that were eliminated or restricted would be restored, but the overall limitation on itemized deductions based on the amount of your adjusted gross income would return.
- The deduction for state and local taxes would no longer be limited to $10,000 ($5,000 if married filing separately).
- The deduction for mortgage interest would still be available, but the maximum benefit would be increased for some individuals, and home equity loans could once again be used for any purpose.
- The deduction for personal casualty losses would be available without regard to whether the loss is incurred in a federally declared disaster.
Personal exemptions, standard deduction, itemized deductions
| Personal and Dependency Exemptions (you, your spouse, and dependents) | ||
| 2025 | 2026 | |
| Exemption | No personal exemption | Yes, $5,200 each (plus inflation adjustment for 2026) |
In 2026, personal exemptions would generally be available in addition to either the standard deduction or itemized deductions.
Additional aged/blind
| Standard Deduction | ||
| 2025 | 2026 | |
| Married filing jointly | $30,000 | Cut by about one-half |
| Head of household | $22,500 | Cut by about one-half |
| Single/married filing separately | $15,000 | Cut by about one-half |
| Single/head of household | $2,000 | About the same |
| All other filing statuses | $1,600 | About the same |
| Itemized Deductions | ||
| 2025 | 2026 | |
| State and local taxes | Yes, limited to $10,000 ($5,000 for married filing separately) | Yes, income (or sales) tax, real property tax, personal property tax |
| Home mortgage interest | Yes, limited to $750,000 ($100,000 for home equity loan, but only if used to buy, build, or substantially improve the taxpayer’s home that secures the loan), one-half those amounts for married filing separately; the $1,000,000/$500,000 limit still applies to debt incurred before December 16, 2017 | Yes, limited to $1,000,000 ($100,000 for home equity loan and can be used for any purpose), one-half those amounts for married filing separately |
| Charitable gifts | Yes, 50% of adjusted gross income limit raised to 60% for certain cash gifts | Yes |
| Casualty and theft losses | Federally declared disasters only | Yes |
| Job expenses and certain miscellaneous deductions | No | Yes |
Child tax credit
2025. The maximum child tax credit is $2,000. A non-refundable credit of $500 is available for qualifying dependents other than qualifying children. The maximum refundable amount of credit is $1,700. The amount at which the credit begins to phase out is high, and the earned income threshold is $2,500.
2026. The maximum child tax credit would be $1,000. The child tax credit would be phased out if modified adjusted gross income exceeds certain much lower amounts. If the credit exceeds the tax liability, the child tax credit would be refundable up to 15% of the amount of income earned more than $3,000 (the earned income threshold).
Credit phaseout threshold
| Child Tax Credit | ||
| 2025 | 2026 | |
| Maximum credit | $2,000 | $1,000 |
| Non-child dependents | $500 | N/A |
| Maximum refundable | $1,700 | $1,000 |
| Refundable earned income threshold | $2,500 | $3,000 |
| Single/head of household | $200,000 | $75,000 |
| Married filing jointly | $400,000 | $110,000 |
| Married filing separately | $200,000 | $55,000 |
Alternative minimum tax (AMT)
2025. The alternative minimum tax exemptions and exemption phaseout thresholds are high.
2026. The alternative minimum tax exemptions and exemption phaseout thresholds would be much lower. Many more taxpayers would be subject to the AMT.
Special provisions for business income of individuals
2025. An individual taxpayer can deduct 20% of domestic qualified business income (excludes compensation) from a partnership, S corporation, or sole proprietorship. The benefit of the deduction is phased out for specified service businesses with taxable income exceeding $197,300 ($394,000 for married filing jointly). The deduction is limited to the greater of (1) 50% of the W-2 wages of the taxpayer, or (2) the sum of (a) 25% of the W-2 wages of the taxpayer, plus (b) 2.5% of the unadjusted basis immediately after acquisition of all qualified property (certain depreciable property). This limit does not apply if taxable income does not exceed $197,300 ($394,000 for married filing jointly), and the limit is phased in for taxable income above those thresholds.
2026. There would be no deduction for qualified business income.
Estate, gift, and generation-skipping transfer tax
2025. The gift and estate tax basic exclusion amount and the generation-skipping transfer tax exemption are $13,990,000.
2026. These amounts would be reduced by about one-half.
Federal 2024 Tax Filing Season Began January 27
IRS began accepting and processing 2024 tax-year returns on Monday, January 27, 2025.
Tips for making filing easier
To speed a potential tax refund and help with tax filing, the IRS suggests the following:
- Make sure you have received Form W-2 and other earnings information, such as Form 1099, from employers and payers. The dates for furnishing such information to recipients vary by form, but they are generally not required before February 1, 2025. You may need to allow additional time for mail delivery.
- Go to irs.gov to find the federal individual income tax returns, Form 1040 and Form 1040-SR (available for seniors born before January 2, 1960), and their instructions.
- File electronically and use direct deposit.
- Check irs.gov for the latest tax information.
Key filing dates
Here are several important dates to keep in mind:
- January 10. IRS Free File opened. IRS Free File Guided Tax Software, available only at irs.gov, allows participating software companies to accept completed tax returns of any taxpayer or family with an adjusted gross income of $84,000 or less in 2024 and hold them until they can be electronically filed with the IRS starting January 27. Also beginning January 27, Free File Fillable forms were available to taxpayers of any income level to fill out and e-file themselves at no cost.
- January 27. IRS began accepting and processing individual tax returns. Also, Direct File (a web-based service that works on mobile phones, laptops, tablets, or desktop computers) opened to eligible taxpayers (check at irs.gov; not all tax situations are covered) in 25 states to file their taxes directly with the IRS for free.
- April 15. Deadline for filing 2024 tax returns (or requesting an extension) for most taxpayers.
- October 15. Deadline to file for those who requested an extension on their 2024 tax returns.
Tax refunds
The IRS encourages taxpayers seeking a tax refund to file their tax return as soon as possible. The IRS expects to issue most tax refunds within 21 days of their receiving a tax return if the return is filed electronically, the tax refund is delivered through direct deposit, and there are no issues with the tax return. To minimize delays in processing, the IRS encourages people to avoid paper tax returns whenever possible.
IRS Releases 2025 Standard Mileage Rates
The IRS has increased the optional standard mileage rates for computing the deductible costs of operating an automobile for business purposes for 2025. However, the standard mileage rates for medical and moving expense purposes remain the same for 2025. The standard mileage rate for computing the deductible costs of operating an automobile for charitable purposes is set by statute and remains unchanged.
For 2025, the standard mileage rates are as follows:
- Business use of auto: 70 cents per mile (up from 67 cents for 2024) may be deducted if an auto is used for business purposes. If you are an employee, your employer can reimburse you for your business travel expenses using the standard mileage rate. However, if you are an employee and your employer does not reimburse you for your business travel expenses, you cannot currently deduct your unreimbursed travel expenses as miscellaneous itemized deductions.
- Charitable use of auto: 14 cents per mile (the same as for 2024) may be deducted if an auto is used to provide services to a charitable organization if you itemize deductions on your income tax return. Your charitable deduction may be limited to certain percentages of your adjusted gross income, depending on the type of charity.
- Medical use of auto: 21 cents per mile (the same as for 2024) may be deducted if an auto is used to obtain medical care (or for other deductible medical reasons) if you itemize deductions on your income tax return. You can deduct only the part of your medical and dental expenses that exceed 7.5% of the amount of your adjusted gross income.
- Moving expense use of auto: 21 cents per mile (the same as for 2024) may be deducted if an auto is used by a member of the Armed Forces on active duty to move, pursuant to a military order, to a permanent change of station (unless such expenses are reimbursed). The deduction for moving expenses is not currently available for other taxpayers.
Act Increases Benefits for Millions The Social Security Fairness
Under the Social Security Fairness Act signed by President Biden on January 5, 2025, almost 3 million Americans will receive a boost to their Social Security benefits.1 This bill, which had bipartisan support, restores full Social Security benefits to some public-sector employees, including teachers, law enforcement officers, firefighters, and others who have been affected by two provisions of current federal law — the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP).
Although the increased benefit amount for individuals will vary, the Congressional Budget Office (CBO) has estimated that eliminating the GPO will increase monthly benefits for 380,000 impacted spouses by $700 on average and by $1,190 on average for 390,000 impacted surviving spouses. Eliminating the WEP will increase monthly benefits for approximately 2.1 million impacted individuals by $360 on average. 2
Those affected will be entitled to higher benefits starting in January 2025. Individuals who received benefits in 2024 will also be entitled to back payments equal to the difference between what they received in 2024 and what they would have received without a GPO or WEP reduction.
Some background
Both the GPO and the WEP were originally intended to equalize benefits for those who receive Social Security benefits based on a job where they contributed to Social Security through payroll taxes (covered employment) and a pension from a job where Social Security payroll taxes were not withheld (noncovered employment). For decades, advocates for reform have been trying to change or repeal these provisions, arguing that they are unfair and cause financial hardship.
Enacted in 1977, the GPO has affected spouses and surviving spouses who receive pensions from a federal, state, or local government or non-U.S. employer based on noncovered employment and who also qualify for Social Security benefits based on their spouses’ work histories in covered employment. The GPO reduces Social Security spousal or widow(er) benefits by two-thirds of the amount of the pension. The reduction was intended to help ensure that the spousal and widow(er) benefits of those with covered or noncovered lifetime earnings would be about equal.
Enacted in 1983, the WEP has affected individuals who receive Social Security retirement or disability benefits based on their own covered employment (if fewer than 30 years) and a pension from noncovered employment. The Social Security benefit formula is progressive, meaning it replaces a greater share of career-average earnings for lower-paid workers than for higher-paid workers. The WEP was passed so that workers receiving pensions from noncovered employment would not receive higher benefits because the Social Security benefit formula did not count their noncovered earnings, making it appear as if they were lower-paid workers. A modified formula was implemented to figure benefits for those affected by the WEP, resulting in lower monthly Social Security benefits; the reduction was limited to half of the amount of the pension.
While advocates of the bill are cheering, opponents of the bill are concerned that repealing the GPO and the WEP will worsen the outlook for the combined Social Security trust funds. According to a CBO cost estimate, the depletion date for the combined Old-Age, Survivors, and Disability Insurance (OASDI) trust funds could be pushed forward about six months, potentially leading to a substantial reduction in Social Security benefits for all beneficiaries even sooner than expected, unless Congress acts to address the impending trust fund shortfall.3
What happens next?
If you’re among those affected, be aware that implementing benefit changes may take some time, according to a message from the Social Security Administration:
“At this time, the Social Security Administration is evaluating the law and how to implement it. We will provide more information on our website, ssa.gov as soon as it is available. If you are already entitled, you do not need to take any action at this time except to verify that we have your current mailing address and direct deposit information. If you are receiving a public pension and are now interested in filing for benefits, you may file online at ssa.gov or schedule an appointment.”4
The SSA notes that you can verify your current mailing address and direct deposit information online without calling or visiting a Social Security office by signing in to a personal my Social Security account or creating one on the SSA website.
1–3) Congressional Budget Office, September 2024
4) Social Security Administration, December 2024
