Why Trump tax deductions — for tips, car loans and more — may not carry large benefits for low earners

New tax deduction — on auto loans, tips and overtime pay, and for older Americans — wouldn't der much of a financial benefit for lower earners, experts said

These policies are part of a massive legislative package championed by President Donald Trump

Senate Majority Leader John Thune (R-SD), flanked by Sen

John Barrasso (R-Wyoming), Sen

Mike Crapo (R-Idaho) and Sen

Bill Clark | Cq-roll Call, Inc. | Getty ImagesTax cuts are the centerpiece of a massive legislative package championed by President Trump and passed Tuesday by Senate Republicans

Many new tax breaks in the bill — on auto loans, tips and overtime pay, and for older Americans — are structured as tax deductions

How much money you with tax deductions, which reduce your taxable income, depends on your bracket

Deductions are more valuable to higher-income households and less beneficial for lower earners, experts said. "The most modest-income workers can't use a tax deduction at all," said Carl Davis, re director of the Institute on Taxation and Economic Policy, a left-leaning policy think tank

Senate Republicans passed the legislation with the narrowest of margins on Tuesday

It now heads to the House, where its fate is uncertain

Tax deductions in the 'big beautiful' billLuis Alvarez | Digitalvision | Getty ImagesThe Republican bill, originally called the One Big Beautiful Bill Act, has more than $4 trillion of net tax cuts, according to the Committee for a Responsible Federal Budget

They also carry various limitations such as income restrictions

Why tax deductions are less valuable to low earnersA tax deduction reduces the amount of income that's subject to tax, i. , taxable income

While the posed tax deductions may sound large, there are a few reasons why low earners may not see much or any benefit, experts said

You need taxable incomeHouseholds need some taxable income to benefit from a deduction, said Garrett Watson, director of policy analysis at the Tax Foundation

Low earners already get a large financial benefit from the standard deduction, Watson said

The standard deduction is worth up to $15,000 for singles and $30,000 for married couples filing jointly in 2025. (If the bill passes as drafted, it would raise the standard deduction to $15,750 for single filers, and to $31,500 for married filing jointly. )More from Personal Finance:Senate Republicans' spending bill boosts child tax creditSenate bill touts tax help for seniors on Social SecurityTrump megabill axes $7,500 EV tax credit after SeptemberTo get a financial benefit from the new tax deductions for car loans, seniors, tips and overtime, a household's taxable income would have to exceed these thresholds, experts said

More than a third, or 37%, of tipped workers in 2022 had incomes low enough that they didn't owe federal income tax, according to an analysis last year by the Budget Lab at Yale University

That means a "meaningful " of tipped workers wouldn't benefit from a tax deduction on tips, it said

Value depends on tax bracketThe relative value of tax deductions depends on a household's tax bracket, experts said

Higher-income households generally fall in a higher tax bracket — any therefore can get a bigger benefit from reducing their taxable income

Mike Lawler on Trump tax bill: A number of us are concerned changes the Senate has madeSquawk Box"If you're in a somewhat higher bracket, every dollar you get to deduct is worth more to you because that dollar would have been taxed at a higher rate," Davis said

The former gets a tax benefit worth 22 cents, while the latter gets one worth 10 cents, Davis said

Some deductions are limitedThere are other reasons why households may not be able to max out certain deductions

Only 1% of new auto loans are this big, according to Cox Automotive data

By comparison, the average new car buyer would be able to deduct $3,000 of interest from their taxable income in the first year of their loan, Smoke said

A deduction of that size would yield an average total tax benefit of $500 or less in the loan's first year, he said

Above-the-line tax deductionsJgi/jamie Grill | Tetra Images | Getty ImagesThere are, however, two elements of the tax breaks that seek to better target benefits to low- and middle- income households

For one, they're all what's known as "above-the-line" deductions

This means households can claim them regardless of whether they use the standard deduction or itemize their deductions

High-income households may be more ly to itemize, meaning they detail a list of eligible deductions on their tax return

Bessent puts pressure on Senate Republicans to move through tax bill before July 4Power LunchTaxpayers itemize when the deductions add up to more than the standard deduction

Some deductions are only available to taxpayers who itemize, such as for "SALT" (or, a deduction for state and local income taxes and perty taxes) or mortgage interest

Also, the new deductions have income limits, barring them from the highest-income households

The value of the senior "bonus" falls once income exceeds $75,000 ($150,000 if married and filing jointly)

Tax creditsTax credits are another mechanism to lower a household's tax bill

Un deductions, the "benefits from tax credits are skewed toward lower- and middle-income households," the Congressional Budget Office wrote in 2021

Credits can be "refundable" or "nonrefundable":Refundable: The credit can reduce your tax bill below zero

In this case, you'd get a tax refund

For example, if your tax liability is $500 and you qualify for a $600 refundable credit, you'd get a $100 refund, according to a CBO example

Some credits are partially refundable, which limits the size of the refund

Nonrefundable: Other credits are nonrefundable, meaning that they can reduce your tax bill to zero, but no lower

Credits that are nonrefundable or only partially refundable may prevent those with low incomes from getting the full value

The largest credits for individuals as measured by total government outlay are the child tax credit, earned income tax credit and the premium tax credit for health insurance, CBO said

But currently, 17 million children do not receive the full $2,000 child tax credit because their families don't earn enough and owe enough taxes, according to the Center on Budget and Policy Priorities.