Donald Trump’s tax cuts could boost your paycheck—Here’s a breakdown

President Trump’s new tax law gives special breaks to workers, seniors, and homeowners — but only if your income is low enough. For example, servers and bartenders won’t pay taxes on up to $25,000 of tips if they make under $150,000 a year (or $300,000 for married couples).

New tax breaks come with strict income caps

Overtime pay gets a $12,500 deduction under the same rules. Seniors aged 65+ can claim a $6,000 tax bonus if they earn less than $75,000 ($150,000 for couples).

These cuts start this year and expire in 2028. However, people earning above these limits get smaller deductions or none at all, so checking your income is crucial.

Homeowners in high-tax states like New York or California get relief too. The law raises the deduction for state and local taxes (SALT) from $10,000 to $40,000 through 2029, but only for households earning under $500,000.

If you buy an American-made car, you can deduct up to $10,000 in loan interest if your income is below $100,000 ($200,000 for couples). All these breaks depend on your “modified adjusted gross income” (MAGI), which usually matches the number on line 11 of your tax return.

The IRS uses this to decide who qualifies, and most people won’t need complex calculations.

The one piece of good news is that for 90% of taxpayers, MAGI is the same as your adjusted gross income (AGI). That’s your total pay minus things like retirement contributions or student loan interest.

Only Americans with foreign income or housing expenses might see a difference. To see if you qualify for the new breaks, check last year’s tax return (Form 1040, line 11). If you’re close to the income limits, you still have time to lower your MAGI for 2025.

Putting money into a 401(k), IRA, or health savings account (HSA) reduces taxable income. Seniors over 70 years can also donate to charity directly from an IRA to shrink their MAGI.
 

Acting fast is the key
 

These tax breaks take effect this year! If your income is slightly too high, consider boosting retirement savings before December 31. Contributing $5,000 to a 401(k) could drop your MAGI below the $150,000 tip/overtime cutoff. But remember: Some cuts won’t last.

The overtime and tips deductions vanish after 2028, and the SALT cap drops back to $10,000 in 2030. While wealthy Americans get bigger permanent tax cuts, the new breaks help middle earners most. Still, critics warn Medicaid and food aid cuts could hurt low-income families, offsetting their small tax savings.