The sweeping new tax and spending bill that President Donald Trump signed into law on July 4 contains numerous new provisions and will have a major impact on almost all Americans.
Among other effects, the new law will leave roughly 17 million people without health insurance, according to an estimate from KFF, a nonprofit health research group, and cut food assistance for more than 22 million families, according to a report from the Urban Institute, a nonprofit research organization.
But looking at the bill solely from a tax perspective, most U.S. taxpayers will benefit come Tax Day.
“While every tax situation is unique, and application of the tax code is complex, there are numerous provisions that should lower the tax bill of millions of Americans,” says Blake Harrison, CPA and executive vice president of wealth management at CapWealth.
Here are six ways the new tax and spending bill could reduce your 2025 tax bill. Keep in mind that these six provisions all go into effect this year. Not included below are other provisions in the megabill — such as the new above-the-line charitable deduction for non-itemizers — that don’t start until 2026 or later.
1. Higher standard deduction
The standard deduction is a set dollar amount that taxpayers can claim each year to lower their tax bill — and the new tax law boosts that amount substantially.
Here’s why it matters: You must choose to either claim the standard deduction or itemize your deductions. You want to pick the larger number, because the number you pick will then be subtracted from your income to get your total taxable income. The lower your taxable income, the lower your tax bill.
These days, about 90 percent of taxpayers claim the standard deduction, mainly because the Tax Cuts and Jobs Act (TCJA) of 2017 almost doubled the standard deduction amount.
But that much higher standard deduction was scheduled to revert to its pre-2017 level at the end of this year. That would have been a major change for taxpayers, but the new tax law makes those higher amounts permanent. In fact, the new tax law even gives taxpayers a little extra boost from the original standard deduction figures for 2025:
The 2025 standard deduction will now be:
- $15,750 for single taxpayers, up from $15,000
- $23,625 for head of household filers, up from $22,500
- $31,500 for married filing jointly filers, up from $30,000
“That’s going to be a nice one for pretty much everybody, unless they itemize their deductions… and should lead to a smaller tax bill,” says Ben Rizzuto, CFP® and wealth strategist at Janus Henderson Investors.
Relatedly, the new tax law also makes the current federal income tax rates permanent — they, too, would have expired at the end of this year and reverted to higher amounts. Instead, the new law maintains them.
2. New bonus deduction for people 65 or older
Eligible taxpayers who are 65 or older get to claim an even higher deduction: The new law includes a bonus deduction worth as much as $6,000, or $12,000 for married couples filing jointly if both spouses are over age 65.
The bonus deduction is temporary — it’s available from 2025 through 2028 — and there are income limits. Once a taxpayer’s modified adjusted gross income (MAGI) hits $75,000 (or $150,000 for married-filing-jointly couples), the value of the tax break starts to phase out.
Lawmakers added this tax break to the law in lieu of eliminating income taxes on Social Security benefits, which was one of Trump’s campaign promises.
“While commonly seen as a deduction against Social Security benefits, you do not have to be claiming Social Security to take advantage of this deduction,” says JP Dowds, CPA and senior wealth advisor at Marshall Financial Group.
3. Higher SALT deduction
Taxpayers who itemize their deductions will now be able to write off more of the money they spend on state and local taxes — including state income and property taxes — thanks to an increase in the value of the SALT deduction.
The new law increases the SALT deduction to $40,000 ($20,000 if married filing separately), up from the $10,000 ($5,000 if married filing separately) cap that had been in place since the TCJA.
But the higher cap is temporary: It’s in effect from 2025 through 2029. In 2030, the cap drops back to $10,000.
The deduction phases out for taxpayers with a MAGI of $500,000 or more ($250,000 or more if married filing separately). That income limit will increase by 1 percent per year and the overall SALT deduction cap will rise by 1 percent per year — until the higher cap expires after 2029.
“This can be a big tax saver for those in states with high income or property taxes,” Harrison says.
4. No tax on tips and overtime pay
One of Trump’s campaign promises was to get rid of federal taxes on tips and overtime pay, and the new law fulfills that promise, at least partly. While workers will still need to report this type of income, they’ll now receive a deduction on qualified tip income of up to $25,000.
Meanwhile, employees who earn overtime pay will get a tax break on up to $12,500 (up to $25,000 if married filing jointly) of the income they earn for working those extra hours.
There are income limits on these tax breaks: Once a taxpayer’s MAGI hits $150,000 (or $300,000 if married filing jointly), the value of each of these tax breaks starts to phase out, decreasing by $100 for every $1,000 above the income limit.
Both of these tax provisions are in effect from 2025 through 2028.
“We’ll probably have more guidance on this from the IRS, but they have said that tips must be a normal part of the business,” Rizzuto says.
For example, eligible servers at restaurants will be able to take advantage of these new deductions, but not people who don’t usually earn tips and now — because of the new law — say they earn tips instead of a salary.
5. Higher child tax credit
The new legislation also raises the amount of the child tax credit, which taxpayers can claim for each qualifying dependent under age 17.
While the TCJA had temporarily increased the credit from $1,000 per child to $2,000 through 2025, the new law hikes that amount permanently to $2,200, effective starting in 2025. The credit amount will rise with inflation adjustments each year after 2025.
The maximum refundable portion of the tax credit is now $1,400 (that too will be adjusted each year based on inflation). The refundable portion is also referred to as the additional child tax credit — it allows you to receive some of the child tax credit as a refund even if you don’t owe the IRS any money.
However, under the new law, the taxpayer claiming the tax credit must have a Social Security number, and that includes both spouses if married filing jointly. Previously, only the child had to have a Social Security number. This change could make an estimated 4.5 million children ineligible for the credit, according to the Center for Migration Studies.
6. New deduction for car loan interest
Eligible borrowers can now claim a deduction for the interest paid on a loan for a personal vehicle, as long as that car is new, was purchased in 2025 through 2028 and was assembled in the U.S.
Rizzuto says it’s currently unclear exactly what “assembled in the U.S.” means — some car manufacturers may, for example, put on a rear-view mirror on the car in the U.S. to try to meet that requirement. We’ll have to see how it plays out, Rizzuto says.
The deduction is maxed out at $10,000 per year and phased out for single taxpayers with modified adjusted gross income above $100,000, or married-filing-jointly above $200,000. You don’t have to itemize on your tax return to receive this benefit.
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