Tax deductions and Trump’s ‘big beautiful’ bill: Here’s who benefits
Senate Majority Leader John Thune (R-SD), flanked by Sen. John Barrasso (R-Wyoming), Sen. Mike Crapo (R-Idaho) and Sen. Lindsey Graham (R-SC), speaks to reporters after the Senate passed President Trump’s reconciliation package on July 1, 2025.
Bill Clark | Cq-roll Call, Inc. | Getty Images
Tax cuts are the centerpiece of a massive legislative package championed by President Trump and passed Tuesday by Senate Republicans.
Many new tax breaks in the bill — on auto loans, tips and overtime pay, and for older Americans — are structured as tax deductions.
How much money you save with tax deductions, which reduce your taxable income, depends on your bracket. Deductions are more valuable to higher-income households and less beneficial for lower earners, experts said.
“The most modest-income workers can’t use a tax deduction at all,” said Carl Davis, research director of the Institute on Taxation and Economic Policy, a left-leaning policy think tank.
Senate Republicans passed the legislation with the narrowest of margins on Tuesday. It now heads to the House, where its fate is uncertain.
Tax deductions in the ‘big beautiful’ bill
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The Republican bill, originally called the One Big Beautiful Bill Act, has more than $4 trillion of net tax cuts, according to the Committee for a Responsible Federal Budget.
Among them are several new tax deductions:
- Car loan interest: Households can deduct up to $10,000 of annual interest on new car loans from their taxable income;
- Tips: Workers can deduct up to $25,000 of tips each year from their taxable income.
- Overtime pay: Workers can deduct up to $12,500 of annual overtime pay from their taxable income. (Married couples filing a joint tax return can deduct up to $25,000.)
- Senior ‘bonus’ deduction: Americans ages 65 and over can deduct up to $6,000 from their taxable income.
If enacted as drafted, these deductions would be temporary, available from 2025 through 2028. They also carry various limitations such as income restrictions.
Why tax deductions are less valuable to low earners
A tax deduction reduces the amount of income that’s subject to tax, i.e., taxable income. You can find your taxable income on line 15 of your Form 1040 individual income tax return.
While the proposed tax deductions may sound large, there are a few reasons why low earners may not see much or any benefit, experts said.
1. You need taxable income
Households need some taxable income to benefit from a deduction, said Garrett Watson, director of policy analysis at the Tax Foundation.
Low earners already get a large financial benefit from the standard deduction, Watson said.
The standard deduction is worth up to $15,000 for singles and $30,000 for married couples filing jointly in 2025. (If the bill passes as drafted, it would raise the standard deduction to $15,750 for single filers, and to $31,500 for married filing jointly.)
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