Senate Republicans pass Trump's tax reconciliation package with new temporary deductions, especially benefiting higher earners.

From CNBC: 2025-07-02 16:17:00

Senate Republicans, led by Majority Leader John Thune, passed President Trump’s tax reconciliation package, highlighting new tax breaks on auto loans, tips, overtime pay, and for older Americans. The bill contains over $4 trillion in net tax cuts and now heads to the House for further consideration.

The tax deductions in the bill would be temporary, lasting from 2025 to 2028, with income restrictions that may limit benefits for low earners. Deductions like car loan interest, tips, overtime pay, and a senior “bonus” deduction have specific limitations based on income levels and tax brackets.

Tax deductions in the bill may not provide significant benefits to low earners due to income restrictions and varying tax brackets. The deductions are structured as “above-the-line” deductions, allowing households to claim them regardless of whether they use the standard deduction or itemize their deductions.

Tax credits are another mechanism to lower tax bills, with a credit reducing tax liability dollar-for-dollar. Unlike deductions, credits benefit lower- and middle-income households more. The Senate legislation aims to increase the child tax credit to $2,200, with partial refundability for low earners to receive up to $1,700 as a tax refund.

Read more: Tax deductions and Trump’s ‘big beautiful’ bill: Here’s who benefits