President Trump’s new tax and spending law, signed on July 4, delivers a major win for working Americans and cements his pledge to put the middle class first.
The sweeping legislation includes numerous impactful provisions designed to lower taxes, reward work, and help families build a stronger financial future. Below are seven of the most important new reforms that were designed to benefit working class and middle-income Americans.
1. Permanent Personal Income Tax Cuts
At the heart of the new law is a permanent extension of the Tax Cuts and Jobs Act (TCJA) personal income tax cuts, originally passed in 2017. In terms of percentage saved, these cuts have overwhelmingly benefited middle-income earners the most, especially those making under $75,000. For example, average filers earning between $40,000 and $50,000 saw an 18.8% tax reduction between 2017 and 2022.
Without the extension of the TCJA personal income changes, millions of Americans would have faced steep tax increases in 2026. By making the TCJA cuts permanent, the new law avoids that burden and offers long-term certainty.
If you want to learn more about the tremendous benefits of the TCJA, check out my latest study on the issue for The Heartland Institute, available here.
2. Expanded Child Tax Credit
The new legislation increases the Child Tax Credit to $2,200 per child and makes it permanent. The credit will also adjust for inflation in future years. Since the benefit phases out for high-income earners, working- and middle-class families are the primary beneficiaries. A family with two children will now save at least $4,400 annually—$22,000 over five years—compared to just $2,000 under the expiring law. If Congress had failed to act, the credit would have dropped to $1,000 and excluded many families altogether.
3. Tax Relief for Tips and Overtime Pay
Fulfilling two of President Trump’s signature campaign promises, the law creates substantial tax breaks for tips and overtime income. Workers can now deduct up to $25,000 in tips and $12,500 in overtime from their taxable income. These benefits are capped for higher earners and are set to expire in 2029 due to reconciliation rules. Still, they offer immediate relief for many in the service and blue-collar sectors.
4. Trump Accounts
A notable and innovative feature of the legislation is the introduction of Trump Accounts—tax-advantaged savings plans for children. Parents can contribute tax-deductible contributions up to $5,000 per year, and employers can add $2,500 more, also tax-free. The funds, invested in a U.S. stock index fund, can be withdrawn at age 18 for key life expenses such as education, home ownership, or starting a business. (The withdrawal will be subject to personal income taxes.)
A pilot program will even provide $1,000 starter deposits for babies born from 2025 and 2028. With steady contributions and investment growth, these accounts could provide substantial financial foundations for the next generation.
When used effectively, Trump Accounts offer middle-income families a strong tool to help secure their children's financial future. If parents begin saving $200 per month from birth and the account earns an average annual return of 10%, the child could have approximately $120,000 by age 18.
5. Buying a Car Just Became a Little More Affordable
The law allows a deduction of up to $10,000 for interest paid on loans for new vehicles that are finally assembled in the United States. Applies to tax years 2025 through 2028. This isn’t a massive tax deduction, but it will make purchasing new American-made cars more affordable for the middle class.
6. Immigration Reform and Border Security
After years of total chaos at the U.S. border, Republicans’ tax and spending law will make significant investments in border security. Among the many items included in the bill are $45 billion for a border wall and other barriers, $45 billion to expand detention facilities, $31 billion for additional hires, training, and other needs for U.S. Immigration and Customs Enforcement, and, importantly, $13 billion to help states and local governments address immigration and border security needs.
7. Senior Tax Deduction
The new law also includes a targeted deduction of up to $6,000 for seniors earning $75,000 or less ($150,000 or less for couples). When combined with the law’s higher standard deduction, this provision will eliminate federal income taxes on Social Security benefits for the vast majority of recipients. According to the Social Security Administration, nearly 90% of beneficiaries will now be exempt from paying federal income taxes on their benefits.
