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Trump Tax Bill 2025: What Changed and How It Affects Your Taxes

From standard deduction amounts to tax brackets and Medicaid cuts, here’s what individual filers need to know about tax changes in Trump's "big beautiful bill."

By now, you've likely heard about the tax and spending megabill that President Donald Trump signed into law on July 4, 2025.

This new law, formally known as Public Law 119-21 and often referred to by Trump as the "big beautiful bill, reshapes many tax rules that you and other taxpayers rely on each year. But understanding the various changes and their implications can be confusing.

Essentially, the tax bill extends many of the lower tax rates and increased standard deduction base amounts from the 2017 Tax Cuts and Jobs Act (TCJA), which was enacted during Trump's first term as president. As a result, some concerns about "tax cliffs" — key provisions initially set to expire at the end of last year — have been alleviated.

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The legislation introduces several new temporary tax deductions and credits, including those related to tips and overtime pay. However, the bill also eliminates or accelerates the phase-out of certain incentives, including the federal EV tax credit and other clean energy credits.

Some changes were effective as of 2025 (returns you just filed in early 2026), while others don't come into play until this year (impacting returns you'll typically file in early 2027).

Cost-wise, the Congressional Budget Office (CBO) projects that this law will increase federal deficits by approximately $4.1 trillion in the next decade. That includes about $700 billion in added interest costs on federal debt.

The law introduces substantial cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps), which provide health and food support to millions of people in the United States.

It’s a lot to digest, but we’ll dive into many of the changes in more detail below, beginning with some key points.

Congress passed the massive bill using the budget reconciliation process. That approach allows a single party, in this case, Republicans, to approve certain legislation with a simple majority.

GOP members in the U.S. Senate narrowly approved the bill after a tie-breaking vote from Vice President JD Vance. Republicans in the U.S. House of Representatives also approved the bill along party lines.

The megalegislation is considered by many Republicans to be the signature fiscal effort of Trump's second term. Here's an overview of some key tax provisions.

The seven tax brackets and their lowered rates stay put for now, so taxpayers didn't see higher income tax rates creep back up after last year, as was feared.

Similarly, the standard deduction remains nearly double what it was before 2017 and will continue to be adjusted each year for inflation. (For 2026, that’s $16,100 for singles and more than $32,200 for couples filing jointly.)

According to separate analyses by the CBO and the Joint Committee on Taxation (JCT), the benefits from this tax law aren’t spread evenly.

People with higher incomes are expected to receive the most significant tax breaks, while many lower-income households might see their overall resources decrease.

Middle-income families could experience small gains or losses, depending on their individual circumstances.

The state and local tax (SALT) deductioncap, which limits how much you can deduct for state and local taxes, rises sharply (subject to income limits) from $10,000 to $40,400 for 2026 and then remains elevated through 2029 before dropping back in 2030.

New temporary deductions allow taxpayers to deduct interest on car loans for new U.S.-assembled vehicles (up to $10,000 per year) purchased after 2024, with income phaseouts and expiration at the end of 2028.

Employees in traditionally tipped jobs, as specified by the U.S. Treasury and IRS, can exclude up to $25,000 in tips from federal income tax through 2028, subject to income limits and specific eligibility requirements.

Overtime pay up to $12,500 (or $25,000 for joint filers) can be deducted in the same period, again with income phaseouts.

The federal Child Tax Creditof $2,200 per child remains, but requires a valid Social Security number.

Newchild savings accounts (calledTrump accounts) start with a $1,000 federal deposit for kids born in 2025–2028 and allow further yearly contributions subject to limits and rules.

Increasedestate tax exemption, raising the threshold to $15 million beginning in 2026, indexed to inflation.

Meanwhile, Medicaid and SNAP funding take significant hits, resulting in reduced eligibility or enrollment, increased work requirements, and lower funding levels. Some expect millions to lose health care coverage or food assistance because of those program cuts.

Here’s more of what you need to know about those provisions and how they could impact your taxes.

This content is for informational and educational purposes only and should not be considered financial, investment, tax, or legal advice. The views expressed are general in nature and may not apply to your individual situation. You should consult a qualified financial advisor, tax professional, or attorney before making any financial decisions.

Note: This is not an all-inclusive list of individual tax changes in the massive bill.

The new megareconciliation legislation extends the TCJA’s seven individual income tax rates and brackets. Taxpayers have avoided the “tax cliff” rate increases that were set to take effect after 2025 if Congress hadn’t acted.

The 2025 GOP tax bill also maintains the nearly doubled base standard deduction, which for 2025 was $15,750 for single filers and $31,500 for married joint filers, indexed for inflation annually. (As mentioned, those amounts adjust to $16,100 and $32,200, respectively, for this year).

The lifetime estate and gift tax exemption was scheduled to be reduced by half in 2026 due to looming Tax Cuts and Jobs Act (TCJA) expirations.

However, under the new Trump tax bill, the lifetime estate and gift exemption increases, as of January 1, 2026, to $15 million ($30 million for married couples).

Meanwhile, gifts given before 2026 benefit from the already-high 2017 tax exemption.

The SALT deduction cap is raised from $10,000 to $40,400 (for 2026), and the base amount will remain elevated for the years 2025 through 2029.

As a result, taxpayers who itemize deductions can deduct a larger amount of state and local taxes (including income, sales and property taxes) from their federal taxable income.

This cap increases by 1% annually during that period but phases out for taxpayers with modified adjusted gross income (MAGI) exceeding $500,000, returning fully to $10,000 for all taxpayers starting in 2030.

Several new deductions included in the tax and spending bill are temporary.

Taxpayers can deduct interest on car loans up to $10,000 per year for new qualifying vehicles assembled in the U.S., purchased after December 31, 2024. Eligible buyers might be able to reduce their overall tax liability without itemizing deductions.

The tax break applies to passenger cars, light trucks, SUVs and motorcycles used for personal purposes.

The deduction phases out 20% annually beginning at $100,000 MAGI for single filers and $200,000 MAGI for joint filers, with full phaseout at $150,000 and $250,000, respectively.

Vehicle Identification Numbers (VINs) are required on tax returns.

Employees in traditional tipping occupations (e.g., servers, bartenders, salon workers) can exclude up to $25,000 in tips earned from federal income tax for tax years 2025–2028.

That essentially means eligible tipped workers might keep more of their earnings by paying less in federal income taxes on tips they earn through 2028. But ...

Income phaseouts start at $150,000 (single) and $300,000 (joint).

Self-employed individuals in tipped trades are excluded.

A deduction for overtime pay of up to $12,500 (single) and $25,000 (joint) is allowed from 2025 to 2028, subject to the same income phaseouts as the deduction for qualified tip income.

The Child Tax Credit (CTC) maximum is $2,200 per qualifying child, indexed to inflation starting in 2026. The refundable portion of the credit is capped at $1,700 per child.

Valid Social Security Numbers are required for taxpayers and dependents to claim the credit.

New tax-exempt Trump accounts receive a government-seeded $1,000 for children born from 2025 to 2028, with additional nondeductible contributions capped at $5,000 per year. These funds, after age 18, can be used for education, home purchase or retirement purposes.

The GOP tax and spending bill brings back higher thresholds for 1099-K reporting from payment apps such as (but not limited to) PayPal, Venmo, Cash App, Etsy, StubHub, eBay, and Airbnb.

Beginning in 2025, for payments you receive for a given tax year, you should only receive a Form 1099-K if:

You receive more than $20,000 in gross payments and

You conduct more than 200 transactions on a single platform within a year.

For HSAs, the new 2025 tax law expands eligibility by allowing individuals enrolled in Bronze or Catastrophic Affordable Care Act (ACA) plans to contribute starting in 2026.

It also permanently allows telehealth services and direct primary care fees to qualify as HSA expenses, broadening the types of health care costs that HSAs can cover.

However, other reforms like expanding eligibility for Medicare enrollees weren’t included.

What this means for most: HSAs largely retain their prior features, including triple tax advantages on contributions, growth, and qualified withdrawals.

Though not tax-related, the Trump tax and spending bill also introduces a significant overhaul of federal student loan programs.

Popular income-driven repayment plans initiated under the Biden administration will be phased out, borrowing for graduate students and parents will be restricted, and some options for deferment due to economic hardship or unemployment will be eliminated.

Though recent news reports indicate that the Trump administration might follow through with processing student loan forgiveness under certain Biden-era programs.

There's more. While the pandemic-era American Rescue Plan Act (ARPA) excluded forgiven student loan amounts from federal taxable income through 2025, the Trump/GOP tax and spending bill doesn't extend that exclusion.

That means, unless Congress acts, student loan debt forgiven after December 31, 2025, will once again be considered taxable income at the federal level.

The new tax law delivers a major shake-up to federal clean energy incentives, setting expiration dates for popular tax credits.

Homeowners planning to install rooftop solar or battery storage had until December 31, 2025, to qualify for the 30% residential solar tax credit; after that, the credit is eliminated.

With these deadlines, some analysts say the law is expected to slow the momentum of clean energy adoption and raise the cost barrier for solar and EV upgrades.

Business provisions in the Trump tax bill

The Trump/GOP tax and spending bill impacts businesses as well. Some key changes include:

Permanent 20% small business deduction for pass-through entities such as partnerships and sole proprietorships.

Permanent 100% bonus depreciation and full expensing for business investments.

(A permanent lower corporate tax rate, initially set by the 2017 TCJA, remains.) Other key business provisions are summarized in the following table.

The bill enacts the most sweeping cuts to Medicaid since the program’s 1965 inception.

The legislation reduces Medicaid funding by roughly 18% over a decade — about $600 billion to $800 billion according to the Congressional Budget Office (CBO) — through a combination of new eligibility restrictions, asset tests, and work requirements.

Most adults, including parents of children age 14 and older, will need to work at least 80 hours a month to keep coverage, with some exceptions.

States will be required to reassess eligibility every six months, rather than annually.

States could also impose co-pays up to 5% of household income and require monthly income verification.

The CBO estimates that 10 million to 12 million people could lose Medicaid coverage in the next 10 years, with additional losses expected from tighter Affordable Care Act enrollment rules.

The impact is expected to fall hardest on families with low incomes, people with disabilities and rural residents.

SNAP: Shrinking food assistance benefits

The bill’s approach to the Supplemental Nutrition Assistance Program (SNAP) is equally notable.

SNAP program funding (formerly known as food stamps) will be cut by about 20%, an estimated $230 billion over 10 years.

Work requirements are expanded to cover adults up to age 64 (up from 50), and parents with children age 14 and older.

States will be required to shoulder a greater share of SNAP costs or risk losing federal support entirely.

Many family advocates say these changes threaten to push millions into food insecurity, especially older workers and families in high-unemployment areas.

Starting in the 2026 tax year, the new law limits gamblers to deducting only 90% of their losses against their gambling winnings. Previously, you could deduct 100% of your losses up to your winnings, meaning you weren’t taxed on net-zero or losing years.

This change applies to all gamblers and related gambling expenses. However, as Kiplinger has reported, several bills have been introduced proposing to reverse this, so stay tuned.

Under the new tax law, a significant change has been introduced to charitable giving incentives.

As of 2026, individuals who claim the standard deduction will be able to deduct up to $1,000 annually for single filers and $2,000 for joint filers in cash donations to qualified charitable organizations.

Additionally, for high-income taxpayers in the 37% tax bracket, the value of charitable deductions has been capped at 35%, meaning they can receive a maximum of 35 cents in tax savings for every $1 donated.

The premium tax credit subsidies under Affordable Care Act (ACA) marketplace plans expired after December 31, 2025.

Congress originally expanded these premium tax credits during the pandemic in 2021 and later extended them through the end of 2025.

They substantially lower health insurance costs for more than 24 million people in the U.S., or roughly 7% of the population.

Data show the tax credits have helped make coverage more affordable for a range of people, including the self-employed, small-business owners and those who lack access to employer or other coverage.

Proponents argue the bill’s tax cuts and spending changes will boost growth and jobs. But the numbers tell a more complicated story.

The CBO projects the bill will add about $3.3 trillion to the national debt over 10 years, even after accounting for the spending reductions and new revenue measures.

Other independent estimates, which factor in the interest on that additional debt, put the true cost closer to $4.5 trillion or more over a decade.

A Tax Foundation analysis shows the largest tax cuts will go to households earning $400,000 and above. The top 1% would receive a disproportionate share of benefits compared with those making $100,000 or less.

Data show that most tax benefits will go to wealthier taxpayers, with the top 10% receiving approximately 80% of the total tax breaks.

Meanwhile, lower-income Americans generally see fewer gains — or even lose resources — especially when cuts to Medicaid and food assistance programs like SNAP are taken into account.

Middle-income families are expected to experience mixed results, depending on their individual circumstances.

What about the public? Some public skepticism was reflected in a CBS News/YouGov poll conducted in early June. About 47% of respondents said the bill would hurt the middle class, 54% believed it would negatively affect low-income people, and 60% expected the wealthy to benefit most.

More recent polling also shows public opinion is generally running against the bill.

According to a recent Pew Research Center poll, only 27% of Americans believe the big bill will help people like them, while 51% think it will hurt the middle class.

A Kaiser Family Foundation’s survey echoes those concerns: 56% of respondents say they're “very worried” or “somewhat worried” that the bill’s benefits will primarily go to the wealthy and corporations, rather than to ordinary families.

Because the megabill was passed by the GOP without Democratic support, the law has added to political divisions.

Many are concerned about the hardship Medicaid and SNAP cuts could bring to vulnerable populations.

New deductions for tips, overtime pay and car loan interest might help some taxpayers but add complexity to filing.

Some environmental advocacy groups criticize the rollback of clean energy tax credits.

Republican lawmakers have focused on aspects of the law they believe support working families, while Democratic lawmakers often point to the high price tag and loss of medical insurance and care for millions.

Understanding the fine print in the new tax law — including exactly which deductions expire when and income thresholds for phaseouts — can help you better prepare your finances and tax filings in the years ahead.

As always, consult a trusted and qualified tax professional or financial planner who can guide you and devise a strategy that fits your situation and goals.

Kelley R. Taylor is the senior tax editor at Kiplinger.com, where she breaks down federal and state tax rules and news to help readers navigate their finances with confidence. A corporate attorney and business journalist with more than 20 years of experience, Kelley has helped taxpayers make sense of shifting U.S. tax law and policy from the Affordable Care Act (ACA) and the Tax Cuts and Jobs Act (TCJA), to SECURE 2.0, the Inflation Reduction Act, and most recently, the 2025 “Big, Beautiful Bill.” She has covered issues ranging from partnerships, carried interest, compensation and benefits, and tax‑exempt organizations to RMDs, capital gains taxes, and energy tax credits. Her award‑winning work has been featured in numerous national and specialty publications.