President Trump has signed a significant piece of legislation known as the “Big Beautiful Bill,” which introduces tax deductions for tips and overtime pay. This new measure allows workers to deduct up to $25,000 in tips and $12,500 in overtime pay, providing financial relief to a majority of those in the service and healthcare industries.
The bill, signed into law on July 4—the 249th Anniversary of the Declaration of Independence—was passed by the House of Representatives after a divisive Senate debate where some members expressed concerns over the budget and Medicaid cuts. Nevertheless, Trump emphasized his commitment to fulfill promises made during his campaign.
The deductions are set to take effect this year, specifically for taxable years starting January 1, 2025, and will expire at the end of 2028. They are aimed primarily at individuals earning more than $150,000, although lower earners can still benefit, albeit to a lesser extent.
Though the tax breaks appear to be beneficial, they are primarily advantageous for middle- to higher-income earners who have sufficient federal tax obligations to leverage these deductions. For instance, a full-time restaurant worker earning a $40,000 annual salary and receiving $20,000 in tips could potentially save around $7,700 in federal taxes if they also earn $10,000 in overtime. In contrast, lower-income workers, such as a waitress earning $15,000 with an additional $10,000 in tips, may find little to no change in their tax situation due to lower tax liabilities.
This tax reform is part of a broader agenda to bolster American workers and their financial situations, especially in sectors where tips and overtime are commonplace. While the immediate boost in take-home pay may not be apparent, the potential long-term savings when filing taxes could alleviate some burdens for many households.
Overall, this legislation is a demonstration of the administration’s efforts to support everyday workers, although its efficacy will largely depend on individual earnings and tax situations. As such, it presents an opportunity for financial improvement for those who are eligible.