What Trump's sweeping domestic policy law means for American workers

CNN

08-07-2025

President Donald Trump's megabill is now a megalaw with wide-reaching implications for many Americans.
Trump has touted that his tax and spending law will boost the economy and put more money in people's pockets, especially for hourly workers.
However, as is the case with most federal laws — especially one that's nearly 900 pages long and peppered with plenty of eleventh-hour additions — the outcomes aren't always that cut and dry.
The law's passage 'happened overnight and on a holiday weekend,' said Nisha Verma, a partner in Dorsey & Whitney's labor and employment practice. 'This will change the lives of Americans, but exactly how still has to be examined.'
Here's a quick look at some of the more notable provisions that could have a significant impact on American workers:
In the 2024 presidential campaign, both Trump and Vice President Kamala Harris supported tax-free tips. However, some tax experts and economists balked at such proposals, claiming that costs could outweigh the benefits and that such a law could have ripple effects such as keeping a lid on lower-earning workers' wages and creating a deduction that could be abused.
Under the One Big, Beautiful Bill Act, workers who received qualified tips will be able to deduct $25,000 of those tips annually from their taxable income. The provision, which has an income cap of $150,000 ($300,000 in the case of a joint return jointly), will be retroactive in a way, because it will apply to the 2025 tax season.
The cut is considered an above-the-line deduction, meaning that it would apply to taxpayers who take the standard deduction in addition those who itemize.
However, like 'no tax on overtime,' this isn't a permanent tax break: It's set to expire at the end of 2028.
'Qualified tips' include cash tips paid voluntarily to a person who works in a job or business that traditionally is tipped. The Treasury Department is expected to release further guidance on the qualifying occupations and industries.
On the surface, 'no tax on tips' sounds like a clear benefit to workers; however, it's not that simple, economist Martha Gimbel, executive director and co-founder of the Budget Lab at Yale, told CNN.
'You may be reading about this in the news and you see, no tax on tips and think, 'That seems great for me,' and you're not taking the time to think about, 'well, wait a minute, I already wasn't paying federal income tax on my tips, because I made too much or too little money.''
No taxes on tips also could have some unexpected ripple effects throughout the labor market and, particularly, the service industry, Dorsey & Whitney's Verma said.
'Now that tips are more valuable, does that mean that rules like tip pooling … are going to be more scrutinized?' she said. 'Are we going to see servers challenging the pooling rules?'
And, with tips gaining in value, that could also disincentivize employers from raising wages and policymakers from considering a higher tipped minimum wage, which sits at $2.13 an hour, she said.
'Yes, the person's getting a benefit by not having to pay taxes on their tips, but there's other challenges that come along with relying on tips for your income, such that you may be subject to more sexually harassing behavior, or you may not be able to advocate for yourself as much as you would want to in front of customers when you don't even have the security of $7.25 an hour from your employer,' she said.
This above-the-line deduction would allow for up to $12,500 ($25,000 in the case of a joint return) in qualified overtime compensation to be deducted for those who earn $150,000 ($300,000 joint) and under. It would apply to overtime over 40 hours per week.
This provision also would take effect for the 2025 tax year and expire at the end of 2028 and apply to only federal taxes.
While no tax on overtime proposals have gained popularity across various US states, critics have cautioned that they could backfire by encouraging excessive working hours and could open the doors for higher earners to game the system.
Still, the nuts and bolts of how the deduction could be applied — and whether employers will have enough time to get their tax houses in order — remain to be seen, Verma said.
'Not all employers only pay overtime on a federal level, which requires time and a half after 40 hours worked,' she said. 'There are four states (plus Oregon in some industries) where there's a requirement on the state level to pay overtime if the person exceeds a certain number of hours worked per day.'
'Most wage statements that I've seen do not pull apart or designate whether an hour is being paid to you because you hit more than eight hours a day or because you hit more than 40 hours a week,' she added.
Workforce Pell Grants: This provision would extend the venerable federal need-based education grant to students in an eligible workforce program for high-skill, high-demand and high-waged jobs.
By extending Pell grants into a broader array of programs, including short-term and postsecondary offerings, proponents say this could help address a critical need: Training more skilled workers.
The provision is expected to take effect July 1, 2026, and apply to programs that provide between 150 and 600 hours of instruction during between eight and 15 weeks.
Enhancement of employer-provided child care credit: This provision increases the tax credit for employers who provide child care to their employees. Starting in the 2026 tax year, businesses can deduct up to 40% of qualified child care expenditures up to $500,000. The provision also expands the credit to small businesses, who can deduct up to 50% of their qualified expenses up to $600,000.
Accessible, available and affordable child care has been shown to boost labor force participation, particularly among women. However, recent data has shown that employer-provided child care is usually limited to larger firms and fewer than 300 firms took the credit in 2016 (according to the Washington Center for Equitable Growth, which flagged a 2022 US Government Accountability Office report).
Exclusion of employer payments of student loans: The OBBB makes permanent a law that allowed employers to offer up to $5,250 in tax-free student loan repayment assistance. And, starting in the 2026 tax year, that amount would be adjusted for inflation in $50 increments.
The continued tax break isn't likely to benefit all student loan borrowers. Research from the Brookings Institution found that 9% of workers in the top 25% of earners had access to student loan repayment benefits versus just 3% of workers in the bottom 25% of earners.
The biggest beneficiaries will be higher-earning, white-collar workers at large employers, according to Brookings.