Tax expenditures, also known as tax breaks, can take the form of exemptions, deductions, credits, and preferential rates. In 2025, individual breaks totaled $2.0 trillion. To put that in perspective, that’s more than the government spent on Social Security, Medicare and Medicaid, or defense.
Tax expenditures should be a key part of any discussion about tax reform. While tax expenditures support many important functions — like charitable giving and education — many economists believe that eliminating some or all tax breaks would benefit the economy by removing market distortions and simplifying the code.

We examine ten of the largest tax breaks for individuals. Together, they accounted for 77 percent of the total cost of tax expenditures in 2025.

1. Exclusion of pension contributions and earnings and individual retirement arrangements ($383 billion). Contributions to pension or retirement plans — such as to 401(k)s and IRAs — are either not taxed when they are received but are taxed when withdrawn from accounts, or for Roth-style plans, contributions are taxed when received and are tax-free at the time of withdrawal.
2. Exclusions of and reductions on dividends and long-term capital gains ($304 billion). Income from capital gains (the profit from the sale of a property or investment) and qualified dividends (generally from shares in domestic corporations that have been held for a specified period) are taxed at a lower rate than other forms of income. Defenders argue that such preferential rates encourage the sort of investment and risk-taking that spur economic growth, but critics note that they disproportionately benefit the wealthy and encourage tax avoidance.
3. Exclusion of employer contributions for medical insurance and care ($226 billion). The in-kind compensation that workers receive in the form of health insurance premiums paid by employers are excluded from federal income and payroll taxes. While the tax break benefits a wide swath of Americans by reducing the effective after-tax cost of health insurance, it is worth more to taxpayers in higher tax brackets than to those in lower brackets.
4. Premium Tax Credit ($135 billion). This tax credit reduces the premium for health insurance plans purchased through the Marketplace established by the Affordable Care Act. The tax credit can be claimed at the end of the year, or taxpayers can apply for an advanced tax credit to be paid throughout the year directly to health insurance companies.
5. Child Tax Credit ($128 billion). This tax credit is designed to make raising children more affordable by easing the financial burden faced by families. A portion of the credit is refundable, which means that if the total value of the credit is more than a family’s total tax liability, part of the difference is returned as a tax refund by the Internal Revenue Service. Research has shown that the child tax credit has a significant impact for low-income families.
6. 20-percent deduction for qualified business income ($76 billion). This tax deduction allows eligible business owners to deduct up to 20 percent of their qualified business income from their taxable individual income.
7. Earned Income Tax Credit ($67 billion). This tax credit is primarily available to low-income working parents, and the credit is refundable. Research shows that the earned income tax credit encourages people to work and that recipients use the credit to cover essential costs.
8. Exclusion of capital gains at death ($66 billion). Unrealized capital gains on assets held at the time of the owner’s death are not subject to income tax.
9. Deduction for charitable contributions ($64 billion). This is an itemized deduction that generally allows taxpayers to deduct up to 60 percent of their adjusted gross income from their taxable income.
10. Deduction of state and local taxes ($49 billion). The deduction of state and local tax payments (known as SALT) allows taxpayers to deduct state and local property taxes and either income taxes or general sales taxes from their federal taxable income.

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