A recent proposal by President Donald Trump aims to alleviate the tax burden for working families, particularly those relying on tips and overtime pay. Under the “One, Big, Beautiful Bill,” which has already passed the House by a narrow margin, the Senate is now considering significant alterations before finalizing the bill.
The original House draft outlined a plan allowing federal deductions for tips and overtime earnings. This would let workers report these income sources on their tax returns without having to pay federal income tax on them. However, the Senate’s revision introduces more restrictions that could affect many taxpayers.
While the Senate maintains the requirement of having a work-eligible Social Security number, it has replaced earlier limits on high earners with caps on deductions. Under this new proposal, the maximum deduction for tips is set at $25,000, and for overtime pay, it’s capped at $12,500 for individuals, while married couples filing jointly could claim up to $25,000 for both. However, individuals with modified adjusted gross incomes (MAGI) surpassing $150,000 will face reduced deductions. For instance, those earning over $400,000 as a single filer would not qualify for any tip deductions.
Additionally, the Senate’s legislation could create inequities for couples where one spouse earns significantly more than the other. This contrasts with the House’s approach, which would allow lower-income earners to claim deductions regardless of their partner’s salary.
Though this proposal seeks to help many working Americans, it acknowledges that further modifications may come as the negotiation process continues. If ratified, the tax changes related to tips and overtime would take effect for tax years from 2025 to 2028, highlighting the evolving nature of tax legislation in Washington.
Overall, these changes reflect ongoing attempts by lawmakers to balance fiscal responsibility with support for hard-working families, showcasing a potential shift in how income sources like tips are treated in tax policy. As the bill progresses, it remains essential for Congress to consider the implications for low- to middle-income earners and strive for fair solutions that benefit the workforce.