If you happen to be in the market for a four-wheeler or a Winnebago, congratulations: Republicans want to give you a tax break.
This week, House GOP lawmakers unveiled the highly anticipated tax section of their “one big beautiful bill,” meant to enact most of the party’s policy agenda. Included in the legislation are a handful of populist measures that President Trump made a signature part of his campaign platform as he targeted blue-collar and older constituencies. They include provisions that would eliminate taxes on tips and overtime, give new cuts to seniors, and make interest on certain auto loans deductible.
That new break for car shoppers would also apply to American-made recreational rides like all-terrain vehicles, campers, and trailers. Your new Polaris Sportsman just got cheaper.
Both during and after the campaign, outside experts have largely dismissed these ideas as potentially expensive gimmicks that would offer little economic bang for the buck, while further gnarling the tax system.
“We are not cleaning up the tax code here. In many ways we are making it worse — more complicated, more distortive,” said Kyle Pomerleau, a senior fellow at the center-right American Enterprise Institute.
But ideas like ditching taxes on tips also happened to poll well, and may have helped Trump’s numbers with young and minority voters. While Republicans in Congress have taken steps to limit the cost of the measures, they’re still committing a large chunk of change to making good on the president’s promises: The tip, overtime, senior, and auto loan breaks will cost $292 billion total, even though they’re all set to expire after 2028 in order to save money on paper.
If they were made permanent, they would likely more than eat up the savings Republicans obtain by dramatically trimming back the electric vehicle, green energy, and manufacturing subsidies Democrats passed to combat climate change under former President Biden.
Love them or hate them, though, these four provisions are bound to be some of the most important pieces of the bill for many consumers and workers. So here’s a rundown of what you need to do about them.
No taxes on tips
The policy: Under the GOP’s proposal, workers like waiters and bartenders would no longer have to pay federal income taxes on their tips. (Payroll taxes for Social Security and Medicare would still apply.)
The background: Trump’s marquee tax break for working-class Americans generated a good deal of controversy, in part because of concerns that higher earners would try to take advantage of it by converting their pay into tips. The Republican measure includes a few safeguards to prevent that. The break would only be available to workers in occupations that “traditionally and customarily received tips” as of the end of 2024 — and to eliminate any ambiguity, the Treasury secretary will be required to draw up an explicit list of which jobs qualify. The break also won’t be available to anyone who would be considered a “highly compensated employee” under the Fair Labor Standards Act, which currently means anyone making $160,000 or more.
So, in theory at least, you shouldn’t see many hedge funders suddenly asking for an end-of-the-year tip.
Still, economists and Democratic groups have lodged other criticisms at the measure. For one, they’ve argued it arbitrarily lowers taxes for tipped employees while excluding other Americans who earn the same amount. (The Center for American Progress, a Democratic think tank, notes that 95% of low- and moderate-wage workers don’t get tips.) That could create some odd inequities, even within businesses. As Pomerleau noted: In restaurants, tipped waiters and bartenders would suddenly have a lower tax rate than dish washers and cooks who may earn similar pay. “It’s hard to come up with a justification,” he said.
No taxes on overtime
The policy: Under federal law, hourly employees who work overtime are entitled to one-and-a-half times their normal pay rate. The new proposal would exempt that extra 50% bonus from federal income taxes. (In other words, if you’re earning time-and-a-half, the half won’t be taxed.)
The background: Budget groups warned that the cost of Trump’s overtime proposal could spin out of control — easily topping $1 trillion over a decade and possibly quite a bit more. Republicans are keeping the expense down by only exempting a portion of total overtime pay from taxation. Highly compensated workers — those earning over $160,000 — are excluded. Still, groups have raised concerns that, like the break for tips, the overtime exclusion will leave workers who earn similar incomes paying vastly different tax rates.
The auto loan deduction
The policy: Americans who borrow to buy a car — or recreational vehicle — would be allowed to deduct up to $10,000 per year in interest from their loan. It’s an above-the-line deduction, meaning non-itemizers can also take it. But the benefit phases out for individuals who earn more than $100,000, or couples who make more than $200,000. One big caveat: The vehicle needs to be assembled in the United States.
The background: This is a bit of a throwback policy. Americans were allowed to deduct all interest on consumer debt, including car loans, until President Reagan’s 1980s tax reforms eliminated that ability. Back then, the White House and Congress sought to simplify the tax code by eliminating itemized deductions and other special carveouts while cutting rates. That approach has widely been seen as the gold standard for tax reform ever since; Trump’s 2017 Tax Cuts and Jobs Act, in some ways, tried to follow that model by curtailing deductions for mortgage interest and state and local taxes as it lowered rates. But Trump’s new tax bill is designed more to target specific political constituencies with bespoke deductions.
The fact that ATV and recreational vehicles were included in the auto loan deduction came as a bit of a surprise, given that they aren’t typically thought of as an essential purchase for most Americans. “There are a lot of people who might find it useful in a rural area, but I don’t know. My cousin had an ATV, and it was just an expensive toy,” said Pomerleau.
The senior deduction
The policy: Americans 65 and older would get a new $4,000 deduction, known as a “senior bonus.” (That’s $8,000 for couples, as long as they’re both over the age minimum). It is technically an add-on to the standard deduction, but itemizers are eligible too. The deduction begins phasing out for individuals who earn more than $75,000, or couples making over $150,000.
The background: Trump proposed eliminating taxes on Social Security during his campaign. That turned out not to be feasible because Republicans are using a process known as “budget reconciliation” to pass their legislation, which will allow them to bypass a filibuster but bars them from touching the Social Security program. The new senior bonus is the GOP’s attempt at a substitute (and a far less expensive one, at that).
If you’re a couple of 65-year-old empty nesters who bring in $150,000 a year and want to buy an RV to go see the country, this tax bill is for you.
