Trump’s Tax Law: What The Megabill Means For Your Money

Key takeaways

President Donald Trump signed his massive tax and spfinishing bill into law on July 4. The new law will create permanent many provisions of the Tax Cuts and Jobs Act of 2017, including current tax rates and the standard deduction, which otherwise would have reverted to pre-2017 levels at the finish of the year.
Notable new tax breaks include a bonus standard deduction worth $6,000 for Americans aged 65 or older, no income taxes on up to $25,000 of qualified tip income and some overtime pay, a new above-the-line deduction for up to $10,000 in qualified car loan interest, and a new above-the-line tax deduction for charitable contributions.
Overall, low-income taxpayers are expected to be hit hard by the law, studies display. For example, taxpayers in the lowest 10 percent of earners will see their resources drop by $1,600 per year on average, according to one Congressional Budreceive Office (CBO) report based on an earlier version of the bill.

Republicans in the Houtilize and Senate managed to overcome divisions in their own party to pass a sweeping tax and spfinishing bill that President Trump then signed into law at a White Houtilize ceremony on July 4.

The law marks a major step forward in fulfilling key campaign promises built by Trump, including extfinishing existing federal income tax rates and other provisions of the Tax Cuts and Jobs Act (TCJA) that would otherwise expire at the finish of this year, as well as introducing new tax benefits such as the following:

A much-debated increase to the existing $10,000 cap on the state and local taxes (SALT) deduction — a deduction that generally benefits wealthier taxpayers in high-tax states. That cap will now be $40,000 from 2025 through 2030.
A permanent increase to the child tax credit to $2,200, from its current $2,000, starting in 2025 (the amount will adjust for inflation each year). The credit would otherwise have dropped to its pre-TCJA level of $1,000.
Tax breaks for qualified tip income and overtime pay, building good on Trump’s campaign promises.

“From a tax point of view, most everyone should benefit,” mainly due to the extension of the TCJA provisions that otherwise would have expired, states Mark Luscombe, a CPA and principal analyst for Wolters Kluwer Tax & Accounting in Chicago.

Under the TCJA, most taxpayers benefited from lower tax rates, an increased child tax credit and a hugeger standard deduction, Luscombe states. “Making those things basically permanent and increasing the child tax credit would tfinish to lower taxes for most everybody, unless they were already paying no income taxes,” he states. (While some people don’t earn enough to owe income taxes, generally all workers pay payroll taxes.)

But Luscombe notes that he’s speaking solely from a tax perspective. The law is massive and includes a slew of domestic policy provisions, including an estimated $150 billion for a crackdown on immigration and new restrictions on Medicaid and other social support programs in addition to its myriad tax-law modifys. Studies have displayn that lower-income Americans could suffer even as wealthier people enjoy valuable new tax cuts.

For example, Americans who fall into the lowest 20 percent by income will lose an average of $560 per year even as those in the highest 20 percent enjoy an average gain of $6,055, according to an analysis by the Budreceive Lab at Yale, a nonpartisan policy research center. (The analysis is based on the June 27 version of the Senate’s bill, which is largely similar to what became law.)

Key tax provisions in the new law

Here are some of the key tax provisions of the new law. Notably, many of these tax benefits would take effect for the current tax year — 2025 — and then finish four years later, at the finish of Trump’s term.

Offers a temporary boost to $40,000 of the current $10,000 cap on the state and local taxes (SALT) deduction, starting in 2025. The deduction will phase out for taxpayers with modified adjusted gross income of $500,000 or more. The value of the deduction and the income limit will increase by 1 percent per year until 2030, at which point the cap drops back to $10,000 (which is the current cap put in place by the Tax Cuts and Jobs Act of 2017).
Gives a temporary “bonus” standard deduction of $6,000 for 65-and-older Americans, in addition to the current standard deduction and on top of the existing extra standard deduction for older Americans, for tax years 2025 through 2028. The amount would phase out for single filers with modified adjusted gross income of $75,000 or more and for married couples with income of $150,000 or more.
Eliminates income tax on some tips, starting in 2025 and going through 2028. The law includes a new tax deduction for up to $25,000 in tip income; the tax break starts to phase out at modified adjusted gross income above $300,000 (married filing jointly) or $150,000 (all other filers).
Eliminates income tax on some overtime pay, starting in 2025 and going through 2028. The law sets a cap on the “no tax on overtime pay” benefit: $25,000 of overtime pay for married filing jointly filers and $12,500 for all other filers. The tax perk starts to phase out at the same income limits as the “not tax on tips” provision.
Provides a new tax-deferred savings account for children. So-called Trump accounts can be opened for children age 8 or under and allow contributions of up to $5,000 per year (with some exceptions) until the child is 18. Any distributions utilized for qualified expenses, including certain education costs, compact-business expenses and first-time homepurchaseer costs, will be taxed at long-term capital-gains rates (which are generally lower than ordinary income tax rates). Non-qualified distributions will face income taxes and a 10 percent penalty. An added bonus for U.S. citizens born from 2025 through 2028: The accounts will be funded with an initial $1,000 from the federal government.
Makes the TCJA’s higher estate tax exemption permanent. The law creates permanent a $15 million estate tax exemption per individual ($30 million for married couples), with a built-in inflation adjustment.
Increases the child tax credit. The law increases the child tax credit to $2,200 per child, up from $2,000 currently, starting in 2025, and creates that modify permanent. (The credit amount will adjust for inflation after 2025.)
Ends the popular Direct File program, an online free guided tool that lets taxpayers file their taxes directly with the IRS.
Makes the popular qualified business income deduction permanent. The law keeps the value of this deduction at its current value of 20 percent of qualified income, but would add a minimum deduction worth $400. This tax deduction is for pass-through entities such as S corporations, partnerships and sole proprietorships.
Eliminates electric vehicle tax credits. The law kills these credits as of Sept. 30.
Creates a tax deduction for car loan interest, available even to taxpayers who don’t itemize their deductions, from 2025 through 2028. The deduction is limited to $10,000 of car loan interest, and phases out for single filers with income of $100,000 or more and couples with income of $200,000 or more.
Creates a deduction that would allow non-itemizers to claim charitable contributions. This deduction, which goes into effect in 2026, will be worth up to $1,000, or $2,000 per married couple, and will be permanent.

Tax rules that won’t modify, thanks to new law

A major piece of the new law is maintaining the status quo, more or less, with regard to current law.

Here’s why: Under the 2017 TCJA, key modifys were built to individual tax laws, including the near-doubling of the standard deduction and increasing the child tax credit to $2,000, from $1,000. Plus, the top tax rate for high-income earners was reduced to 37 percent, from 39.6 percent, and a new 20 percent deduction was created for certain types of business income.

While some of the TCJA’s provisions were permanent, many were set to expire at the finish of 2025. This new tax law ensures that many tax provisions stay in place. However, lawcreaters did create some tweaks around the edges. For example, the new law adds an extra boost to the standard deduction, and offers an additional inflation boost for some tax brackets (which effectively lowers tax rates). Specifically, the law:

Boosts the standard deduction for 2025 to $15,750 for single filers, from $15,000 before the law, $23,625 for head of houtilizehold filers, from $22,500, and $31,500 for married fling jointly filers, from $30,000.
Adds an extra inflation boost for some tax brackets for 2025. The law offers a one-time increase to the annual inflation adjustment for the 10 percent, 12 percent and 22 percent brackets, which effectively reduces tax rates.

Lower-income taxpayers hit hardest

This new tax law will lead to drastically different results for U.S. taxpayers, depfinishing on where they fall on the income spectrum.

The wealthy would see their income grow while the lowest income Americans would experience sharp cuts, according to the Budreceive Lab report cited above, as well as an earlier CBO report. From 2026 to 2034, according to the CBO report:

Wealthier taxpayers — those in the top 10 percent of income — would enjoy a 2.3 percent boost in resources, or an extra $12,000 per year on average.
Middle-income taxpayers would see their resources rise, but by less than 1 percent of their income — an estimated extra $500 to $1,000 per year on average.
Taxpayers in the lowest 10 percent of earners would see their resources drop by about 3.9 percent of their income — or about $1,600 per year on average.

The CBO report is based on a Houtilize version of the legislation, which is slightly different from the bill that became law.

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