New TPC analysis shows income differences explain most of the variation in the tax benefits that White, Black, and Hispanic households receive from last year’s budget reconciliation law, or the One Big Beautiful Bill Act (OBBBA). But income does not explain everything. 

Within the bottom two income quintiles, Black and Hispanic households receive larger average tax cuts than White households, TPC finds, largely because those households are more likely to include children or include more children.

Among the highest-income 5 percent of households, however, White households receive larger average gains than Black or Hispanic households, largely because on average they report more business income eligible for the qualified business income deduction.

Understanding the sources of these differences can help policymakers assess how individual tax provisions affect families’ economic well-being and address affordability concerns across racial and ethnic groups.

Prior TPC estimates showed differences in OBBBA impacts by race and ethnicity

In March, TPC reported the overall distributional impacts of OBBBA’s tax provisions by income level and racial or ethnic group:

• The average federal tax cut from OBBBA in 2026 for White households is $3,350, compared with $1,770 for Black households and $1,730 for Hispanic households. 
• Average tax cuts as a share of after-tax income are also larger for White households, at 2.8 percent, than for Black and Hispanic households, at 2.5 and 2.6 percent, respectively.

Income explains most of those differences

New TPC estimates show these overall differences are largely due to White households’ higher average incomes. Households with higher incomes generally receive larger benefits from OBBBA, both in dollars and in percentage change in after-tax income.

For example, after adjusting for differences in how White, Black and Hispanic households are distributed across income groups, the racial and ethnic gap in OBBBA’s impacts falls from nearly 50 percent to less than 5 percent.

However, important differences remain within individual income groups, especially among the bottom two income quintiles and the top 5 percent of households by income.

Household composition helps explain larger gains for lower-income Black and Hispanic households

Within the bottom two income quintiles, Black and Hispanic households gain relatively more from OBBBA tax cuts than White households, due largely to differences in the presence and number of children. 

OBBBA included tax cuts favoring households with children, most notably the extension and expansion of the child tax credit. Black and Hispanic households in the bottom two income quintiles were more likely than White households to have at least one child, have more children on average, and to file as heads of household.

OBBBA also included an enhanced standard deduction for seniors. Because Black and Hispanic households in these income groups were less likely than White households to include a taxpayer age 65 or older, they received less benefit from that provision. That difference offsets some, but not all, of their relative gains. 

The net result: Among households in the second income quintile (incomes between $35,000 and $67,000), White households gain $680 from OBBBA in tax year 2026, while Black households gain $140 more, and Hispanic households gain $240 more (Figure 1).

Business income helps explain larger gains for White households with high incomes

Among the top 5 percent of households by income, those with incomes over $461,000, White households gain relatively more in dollar terms than Black or Hispanic households, in large part because White households have, on average, more business income eligible for the Qualified Business Income (QBI) deduction.

The QBI deduction, also known as the 199A deduction, is estimated to be the largest factor explaining the smaller gains among Black and Hispanic households’ compared with White households. This deduction, which OBBBA extended and expanded, allows eligible business owners to deduct a share of certain “pass-through” business income reported on their individual income tax returns.

Business ownership rates and business values vary substantially by race and ethnicity, reflecting in part longstanding differences in income, wealth, and access to capital. Those differences may inhibit the ability to set aside sufficient resources to start and sustainably run a business. The US Treasury has previously estimated that roughly 90 percent of QBI deduction benefits accrued to White families in 2023, whereas Black households received only 2 percent and Hispanic families only 5 percent of the total tax benefits.

The bottom line: White households in the top 5 percent gain about $31,000 from OBBBA in tax year 2026. Black households gain $6,860 less than White households and Hispanic households gain$4,340 less (Figure 2).

Looking within income groups reveals important differences that overall averages can miss

A large body of economic and legal research shows that tax policies can affect racial and ethnic groups differentlybecause of persistent differences in income, wealth, and household structures that can limit access to housing, education, and employment.

Many households continue to face affordability pressures. But the extent to which OBBBA reduces their tax burdens varies across income groups and by race and ethnicity. Looking only at the law’s overall distribution can obscure those differences.

Identifying how and why OBBBA’s tax benefits vary by race and ethnicity within income groups can help policymakers assess whether future tax provisions would narrow or widen existing economic gaps and how they would affect households’ ability to make ends meet.