Ask the Editor, August 22: Tax Questions on What Congress Will Do Next

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at questions on what Congress will do next with taxes. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Federal government shutdown

Question: What are the chances that the federal government will shut down after September 30?

Joy Taylor: Although there is a chance the federal government will close on October 1, the odds are better that Democrats and Republicans in Congress will reach a short-term extension agreement to fund the government for maybe 30 days. We expect that this government funding fight will continue throughout the fall.

Many hurdles need to be cleared for Congress to reach a government funding deal by the end of September, including the following. First, Republicans and Democrats are very much divided. Second, there is intraparty bickering among Republicans. Third, the push by the White House to claw back money previously approved by Congress is also causing friction. In July, Republicans agreed to rescind $9 billion in previously approved spending for the Corporation for Public Broadcasting and foreign aid. President Trump wants Congress to approve a second bill rescinding even more funding, although we don't yet know the details. Democrats are fuming over these rescission bills and are questioning whether they should cooperate with their Republican colleagues on government funding if Congress is later going to renege and rescind the money.

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2. IRS and a government shutdown

Question: If the federal government does shut down after September 30, how will this impact the IRS?

Joy Taylor: Luckily, if there is a government shutdown, it will not occur during the filing season. So filers generally won't have to worry about late refunds or delayed return processing.

However, the IRS has a lot on its plate to implement all of the tax changes in the so-called One Big Beautiful Bill law (OBBB), which was enacted on July 4. The agency has to revise forms, instructions and publications, and do it soon, since many of the OBBB's changes take effect for 2025 tax returns that will be filed early next year. Several of the new tax changes have complicated rules and guardrails that will require IRS guidance to interpret. Also, the IRS's IT people have to reprogram computer systems to account for all the changes.

Implementing the OBBB changes will be a hurculean task for an agency that by Sept. 30, 2025, is expected to lose 25% of its total workforce. However, although it's a massive undertaking and there will definitely be hiccups, we believe that the agency will step up. Passing the OBBB was a White House priority, and President Trump's administration will pressure the Treasury Dept. and the IRS for as seamless an implementation process as possible. This is so, even in the midst of a possible government shutdown. If the government does shutter, we think the IRS will keep many employees working to implement the OBBB changes.

3. Obamacare subsidies

Question: Will Congress extend the expansions to the health premium tax credits (PTC) that are set to expire after this year?

Joy Taylor: We think so, but it's still too soon to tell. The PTC is an Obamacare tax subsidy for eligible individuals who buy health insurance through the marketplace. Most people who qualify opt for the PTC to be paid in advance, directly to the health insurance company, to lower their monthly premium payments.

During the height of the COVID-19 pandemic, federal lawmakers enhanced the PTC, allowing more people to qualify and increasing the credit amount. But these expansions are temporary, ending after 2025. Letting these expansions lapse will impact people seeking health insurance for 2026 and later years and could cause millions to lose insurance.

Extending the expiring expansions to the PTC is a priority of democratic lawmakers in Congress. Don't be surprised if Democrats use this as a negotiating tool in the government funding discussions. There is a willingness among some Republicans in Congress to make a deal with Democrats on this issue.

4. Another budget reconciliation bill

Question: I keep reading that House Speaker Mike Johnson (R-LA) wants to do another budget reconciliation bill this year. Do you think this will happen, and if so, what will it cover?

Joy Taylor: Republicans in Congress passed the OBBB through the complicated budget reconciliation process. This allowed them to bypass the 60-vote filibuster rule in the Senate and instead pass the law on a strict majority vote. Republican leaders and tax writers are now saying that they would like to pull off another reconciliation bill this fall. Items that could be included in any such bill are further cuts to Medicaid and other provisions that were in the House's version of the OBBB but were slashed by the Senate parliamentarian because they violated procedural rules.

We think the odds of another reconciliation bill this year are quite low. Many in Congress don't see this as a priority, nor do they have the stomach to go through this process again. Remember, the OBBB passed in the Senate only because of the tie-breaking vote by Vice President Vance. Also, there's a lot on Congress's plate, first and foremost, avoiding a government shutdown. And, as we said above, we expect that process to last through the end of the year.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication.
Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the OBBB and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

More Reader Questions Answered

• All Ask the Editor Q&As
• Ask the Editor: Questions on the New Tax Law
• Ask the Editor: Questions on the $6,000 Senior Deduction
• Ask the Editor: Questions on home sales and taxes
• Ask the Editor: Questions on Inherited IRAs
• More Shutdown Struggles Ahead for Divided Congress