Cecily Zamora
The latest tax laws, introduced in 2025 under the One Big Beautiful Bill Act (OBBBA) or the One, Big, Beautiful Bill, are set to benefit several groups. The bill, signed into law by President Trump, is projected to reduce taxes for Americans earning under $50,000, with the average American taxpayer expected to see a tax cut of $3,752. The bill also eliminates taxes on tips, overtime pay, and car loan interest, benefiting tipped workers, hourly workers, and families. Additionally, it expands healthcare savings accounts, enhances the adoption tax credit, and increases the standard deduction for working families. However, it's important to note that the bill has received mixed responses, with some critics arguing that it primarily benefits the wealthy while reducing government spending.
| Characteristics | Values |
|---|---|
| Name of the Tax Law | One Big Beautiful Bill (OBBB) |
| Other Names | One Big Beautiful Bill Act (OBBBA), The Big Beautiful Bill, Trump's New Tax Plan |
| Applicable | 2025 taxes (filed in 2026) and beyond |
| Applicable Tax Rules | No Tax on Tips, No Tax on Overtime Pay, No Tax on Social Security, Expanded Child Tax Credit, Made in America Tax Breaks, Small Business Tax Cuts |
| Impact | Americans earning under $50,000 will have their taxes cut by 14.9%The average American family of four making less than $100,000</co: 9,15> will receive an additional $600 in tax cuts and up to $10,900 in additional take-home pay. The average American taxpayer will see a tax cut of $3,752. |
| Other Changes | Suspends the Biden-era SAVE (Saving on a Valuable Education) plan. Reduces the number of repayment plans to just two programs. Places loan limits on part-time students, undergraduate, and parent borrowers. |
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What You'll Learn
Americans earning under $50,000
Trump's new tax law includes some child tax credit increases from $1,000 to $2,000 per qualifying child on your 2025 tax return. The maximum refundable portion is $1,700 in 2025, which can be claimed on the tax return filed in 2026. However, not everyone will be able to claim the child tax credit. To claim the CTC, the child and the taxpayer must have a Social Security number. The Child and Dependent Care Tax Credit (CDCT) is also permanently enhanced from 35% to 50% for qualifying expenses under the newly enacted OBBB.
According to a distributional analysis from the nonpartisan Joint Committee on Taxation, the largest proportional tax benefits go to workers and families making less than $50,000. The committee found that in 2027, under the new law, tax liability would drop by 16.4% for households earning less than $15,000, by 27.1% for households earning between $15,000 and $30,000, by 9.5% for households earning between $30,000 and $40,000, and by 7.2% for households between $40,000 and $50,000. However, nonpartisan analyses show that the lowest earners in the US will see little benefit from Trump's tax cuts, with households earning up to $18,000 a year losing an estimated $165 in after-tax dollars by 2027, and up to $1,520 on average by 2033.
Additionally, the new tax law includes a $6,000 tax deduction for taxpayers over 65 years old with incomes below $175,000 ($250,000 for joint filers). This deduction could reduce the tax on benefits for millions of Social Security recipients by lowering their overall taxable income. However, it should be noted that this deduction is set to expire after the 2028 tax year.
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Families making less than $500,000
The One Big Beautiful Bill (also known as OBBB or OBBBA) is a piece of Republican legislation that was signed into law by President Trump in 2025. It is an extension and enhancement of the 2017 Tax Cuts and Jobs Act (TCJA). The bill is projected to decrease federal revenues by $4.5 billion through 2034.
The bill includes several changes that benefit families making less than $500,000. Firstly, it provides tax cuts for Americans earning under $50,000, with a 21% tax cut for those earning between $15,000 and $30,000. It also preserves and boosts the standard deduction by up to $1,500 for working families, providing relief to 91% of American taxpayers. Additionally, it eliminates income taxes on tipped income for tipped workers, boosting their income by up to $1,300. It also eliminates income taxes on overtime pay for hourly workers, increasing their income by up to $1,400.
The bill also includes changes that benefit families more broadly, such as expanding access to the child care credit and making permanent the paid leave tax credit. It enhances the Adoption Tax Credit and grows the child and dependent care credit and FSAs. It also expands health savings accounts, giving families more control over their healthcare.
While the bill provides some benefits to families making less than $500,000, it is important to note that it also includes significant funding cuts to key programs, such as Medicaid, which may have negative consequences for certain groups. Overall, the bill is estimated to reduce federal taxes for individual taxpayers across all states, with an average tax cut of $3,752 per taxpayer in 2026.
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Tipped workers
The "No Tax on Tips" law, part of the One Big Beautiful Bill (OBBB) signed into law by President Trump in 2025, is expected to benefit tipped workers. Under this law, workers in qualifying tipped occupations can deduct up to $25,000 in tips from their taxable income for tax years 2025 through 2028. This deduction begins to phase out for those earning over $150,000 ($300,000 for joint filers), and workers will still have to pay federal taxes on tips beyond the $25,000 cap.
The OBBB incorporates the "No Tax on Tips Act," which passed the U.S. Senate with bipartisan support. This measure is expected to allow millions of tipped workers to keep more of their earnings, at least in the short term. Qualifying jobs include those where tipping is customary, such as servers, bartenders, hair stylists, and nail technicians. However, the U.S. Treasury Department and IRS are yet to provide specific guidance on eligible occupations.
While the "No Tax on Tips" policy is a welcome change for many tipped workers, some labor unions and advocates have expressed concerns. They argue that the policy's limited timeframe, deduction cap, and potential for creating disparities between front-of-house and back-of-house staff may diminish its benefits. Additionally, cuts to Medicaid and food assistance could offset potential gains for working-class individuals, including the estimated 45% of restaurant and tipped workers who rely on Medicaid.
It is important to note that tipped workers are still required to report tips as part of their gross income and can then claim a deduction for the tips received. This deduction is advantageous only if there is some taxable income to offset. As a result, tipped workers earning close to the minimum wage may not benefit significantly from this policy.
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Hourly workers
The latest tax laws, including the One Big Beautiful Bill Act (OBBB) and the Keep Act, the Overtime Pay Relief Act of 2025, and the No Tax on Overtime Act, have been touted as a win for the working class and hourly workers in the United States.
The OBBB, signed into law by President Trump in July 2025, includes provisions for no tax on overtime pay for hourly workers. This means that workers who are paid by the hour and work overtime will not have their overtime compensation taxed. This policy is expected to put more money into the pockets of hourly workers and incentivize overtime work.
However, it is important to note that the impact of this policy may vary depending on factors such as skill level and autonomy over work organization. Evidence from France's TEPA law, which had a similar exemption from 2007 to 2012, suggests that highly skilled workers with greater autonomy, such as managers and technicians, may benefit more from this policy. They can strategically declare more overtime hours while managing their total work hours, resulting in a higher tax benefit.
On the other hand, low-skilled or unskilled workers may experience a smaller benefit or even a decrease in wages due to the increase in labor supply. Employers may still try to prevent excessive overtime to avoid overtime premiums, and these workers often have less control over their work schedules. Additionally, some low-income workers may not benefit from the overtime deduction due to the standard deduction and tax credits eliminating their tax liability.
Overall, while the latest tax laws with no tax on overtime pay are intended to benefit hourly workers, the actual impact may vary depending on individual circumstances, with skilled workers with greater autonomy potentially gaining more advantages.
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The wealthy
The latest changes to tax laws in the US, known as the One Big Beautiful Bill (OBBB), have been touted as beneficial to the average American taxpayer. However, critics argue that the wealthy will benefit the most from the new tax laws.
The OBBB, signed into law by President Trump in 2025, introduces significant changes to the tax code, impacting how Americans file their taxes in 2025 and beyond. While the legislation includes provisions such as "No Tax on Tips", "No Tax on Overtime", and an expanded Child Tax Credit, the overall reduction in tax revenue suggests benefits for high-income earners.
The bill extends and enhances temporary tax cuts first implemented in the 2017 Tax Cuts and Jobs Act (TCJA), which already benefited high-income earners. The TCJA reduced the top marginal individual tax rate, and since 1945, the average effective tax rate has dropped significantly for the top 1% and 0.01% of earners. The OBBB is projected to add $3.4 trillion to the national debt over ten years, indicating substantial tax breaks for certain segments, including the wealthy.
Additionally, the OBBB restructures student loan borrowing by suspending the Biden-era SAVE (Saving on a Valuable Education) plan. This impacts 8 million borrowers enrolled in income-driven repayment programs, potentially affecting low and middle-income households more than high-income earners.
While the OBBB includes provisions targeting working-class Americans, such as protecting or creating jobs and boosting income for tipped and hourly workers, the overall impact suggests greater advantages for wealthier individuals and families. The bill's focus on tax cuts and reductions in government spending aligns with traditional Republican orthodoxy, which has historically favored lower taxes.
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Frequently asked questions
The new tax laws benefit Americans earning under $50,000, with a 14.9% tax cut. 66% of the tax cuts benefit families making under $500,000.
The new tax laws include "No Tax on Tips", "No Tax on Overtime", "No Tax on Social Security", an expanded Child Tax Credit, Made in America tax breaks, and small business tax cuts.
The new tax laws eliminate income taxes on overtime pay for over 80 million hourly workers, boosting their income by up to $1,400.
The new tax laws suspend the Biden-era SAVE (Saving on a Valuable Education) plan, impacting 8 million borrowers enrolled in the program. Borrowers with loans in SAVE forbearance will see their loans start accruing interest.
