The Comprehensive Tax Cut Act proposed by President Trump (Trump) was finally passed in the House of Representatives on Thursday, and on Friday (July 4th), Trump signed it into law.
On Thursday afternoon, the House of Representatives in Congress passed the Comprehensive Tax Cut Act with a slim margin of 218 votes in favor and 214 against, marking a significant political victory for Trump and the Republican Party. Trump later described it as an extraordinary triumph.
The Comprehensive Tax Cut Act has various implications for Americans, including student loans, car purchases, overtime work, entrepreneurship, and service personnel. The act makes Trump’s 2017 tax cuts permanent, while also enhancing wages through other forms of individual and corporate tax relief measures such as expanding child tax benefits, tax exemptions for tips and overtime pay, exemption of social security contributions, and providing tax-deferred savings accounts for newborns.
The act also increases spending on border security and defense while reducing welfare expenses by tightening eligibility rules for welfare programs.
According to certain provisions of the act, tax incentives for clean energy have been significantly reduced, with tax credits for purchasing new and used electric vehicles set to expire this year, and charging station installation credits set to expire by June 30, 2026.
The following are the impacts of the act on student loans, car purchases, and other aspects:
Student loans will undergo significant changes. Firstly, the act broadens the scope of Pell Grants applications, which are federal aid targeted at low-income families and applicable to students attending short-term, workforce-focused programs.
The new act sets limits on borrowing from the federal government to pay for education expenses.
Specifically:
– For graduate students, the unsubsidized loan limit is $20,500 per year and $100,000 lifetime.
– For professional degree holders (such as doctors and lawyers), the loan limit is $50,000 per year and $200,000 lifetime.
– The lifetime borrowing limit for all federal loan recipients is increased to $257,500.
– Under the federal “Parent PLUS” loan program, the parent loan limit is $20,000 per student per year and $65,000 lifetime.
– Starting from mid-2026, new federal student loans will only have two repayment plans: a fixed, standard repayment amount or an income-based repayment plan called the Repayment Assistance Plan (RAP).
The new act also eliminates deferments for unemployment and economic hardship, meaning student loan borrowers cannot pause or defer repayments during difficult economic periods.
The act introduces tax relief on car loan interest. A household can receive up to $10,000 in tax deductions for new car loan interest each year. This tax relief is temporary and will last from 2025 to 2028.
Of course, there are qualifications and restrictions for those seeking this tax relief. For individuals with an annual income exceeding $100,000, the amount eligible for tax relief will gradually decrease, and for married couples filing jointly, the reduction begins once their combined income exceeds $200,000. Moreover, the new car must be assembled in the United States to qualify for the tax relief.
The act specifies that qualified tip income can receive a temporary federal income tax deduction of up to $25,000 per year.
This tax deduction applies to individuals who typically report cash tip income to their employers. Taxpayers with incomes over $150,000 or couples with a joint income over $300,000 are not eligible for this deduction.
The temporary tip income tax relief only applies to tax years 2025 to 2028. The Secretary of the Treasury will announce a list of occupations that typically receive tips by December 31, 2024.
The new act also provides temporary tax incentives for overtime pay, another measure advocated by Trump during his campaign.
From 2025 to 2028, the maximum tax relief for overtime pay is $12,500, and jointly filing spouses can claim up to $25,000 in relief. Once incomes exceed $150,000, the tax relief gradually phases out, with a cap of $300,000 for couples filing jointly.
The act ends several consumer tax incentives related to clean energy. It eliminates the $7,500 tax credit for families purchasing or leasing new electric vehicles and the $4,000 tax credit for families buying used electric vehicles after September 30, 2025.
Additionally, it abolishes tax incentives for consumers enhancing residential energy efficiency (such as installing rooftop solar panels, heat pumps, or energy-efficient doors and windows), which will terminate after December 31, 2025.
Another key provision of the new act is providing tax relief for sole proprietorships, including private contractors, freelancers, and gig workers.
Trump’s 2017 tax cut legislation stipulated a 20% tax deduction on legitimate business income for sole proprietorships. The new act makes this deduction policy a permanent regulation, though with some restrictions.