Elder Law update: How the new tax bill could affect your family

Big bill, huge hurdles

Historically, it is not uncommon for an incoming President to push new tax legislation within the first year as a way to make good on promises made during the campaign. Whether such efforts succeed often depends on how ambitious the proposed changes are, as well as which political party happens to control Congress. This year is no exception as President Trump has pushed to have his signature piece of tax legislation enacted within months of returning to the Oval Office. And while Republicans hold the majority of both chambers, the path to getting his sweeping “One Big Beautiful Bill” approved was far from certain (and hardly a surprise given how much was packed into the 870-page bill).

The purpose of this alert is to highlight some of the key aspects of the recently passed tax bill that we think are notable for many of our clients, especially in the Elder Law arena.

Major changes to Medicaid

The new law is expected to cause nearly $1 trillion in cuts to Medicaid over the next decade, likely affecting both eligibility and the affordability of care. Major changes include:

• Reduction in federal funds. Beginning in 2028, states will have limited ability to use “provider taxes” to obtain additional federal funding to support their Medicaid program. The new law specifically targets the 40 states (including Illinois) that expanded Medicaid under the Affordable Care Act (ACA), potentially limiting Medicaid’s reach in these states. Such states may be forced to increase taxes or reduce provider payments if they hope to avoid cutting Medicaid services. Likewise, hospitals and long-term care facilities that rely heavily on Medicaid could face lower reimbursement rates or restricted access for new patients.
• Work requirements. New rules will require some Medicaid recipients to work or meet activity standards (such as job search or volunteer work).
  • Seniors, those with disabilities and parents of young children are exempt.
  • Work requirements for SNAP recipients (formerly known as ”food stamps”) now apply up to age 65 (formerly age 60).
• Cost sharing. Medicaid recipients who qualified through ACA expansion face new charges such as copayments or premiums. These increased costs could financially burden low-income adults, including younger retirees not yet eligible for Medicare.

Temporary tax relief

Through 2028, workers will be able to exclude the following from their taxable income:

• up to $25,000 in tip income; and
• up to $12,500 (or $25,000 per couple) in overtime pay.

These exclusions begin to phase out at $150,000 of income per person.

New “Trump Accounts” for children

The law introduces a new tax-deferred savings account for U.S. children born between 2024 and 2028. The new “Trump Accounts” provide:

• $1,000 government contribution at birth
• Up to $5,000/year in after-tax contributions from family or others
• Funds are invested in diversified index funds
• Accessible starting at age 18 for education, business, housing or training
• Fully accessible by age 30 for any purpose
• Qualified distributions taxed at long-term capital gains rates
• Non-qualified distributions taxed at ordinary income rates

Additional provisions of note

• Estate & gift tax exemption. The exemption remains high at $15 million per person, beginning in 2026, and is thereafter adjusted for inflation.
• Child tax credit. Increased to $2,200 per child and permanently indexed for inflation.
• State and Local Tax (SALT) deduction. Temporarily raised to $40,000/year through 2030, which may help higher-income retirees in states with high property taxes. However, the increase begins to phase back down to $10,000 for those with income over $500,000[1].

What this means for you

As mentioned, the actual law is nearly 900 pages and there is no easy way to summarize a law of that scope without leaving out many important aspects. This summary is only a small taste of the new law. Please feel free to contact any of our several elder law and tax attorneys for assistance and counsel on how this new law might impact you.

Client alert authored by Bryan M. Montana (312 855 6105), principal.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

[1] The phase-down is 30 cents per dollar over $500K, meaning someone with income of $590K or above is still limited to $10,000/year in SALT deductions.