Trump’s ‘Big Beautiful Bill’ Promises ‘No Tax On Tips And Overtime’, But There’s A Limit—Here’s Who Qualifies

During his campaign, President Trump vowed to eliminate taxes on tips and overtime pay.

A version of that promise has now become law through his new tax-and-spending package — but the relief comes with limits and qualifications.

What the New Law Does

The law introduces two above-the-line deductions — one for tips and one for overtime pay. This allows eligible workers to deduct certain income from their federal taxable income, reducing how much they owe in federal income taxes.

However, this does not eliminate all taxes on that income. Workers will still pay:

• Federal payroll taxes (Social Security and Medicare)
• State and local income/payroll taxes (where applicable)

Who Qualifies and What Are the Limits?

For Tips

• Deduction cap: Up to $25,000 per year
• What counts: Cash tips, card tips, and shared tips
• Who qualifies: Workers in traditionally tipped occupations (e.g., food service, salons). The IRS and Treasury Department will publish a full list.

For Overtime

• Deduction cap: Up to $12,500 per year ($25,000 for joint filers)
• What counts: Only the extra earned from overtime — not the full wage. (e.g., if overtime pay is 1.5x normal rate, only the 0.5x part is deductible)
• Who qualifies: Employees eligible for overtime under the Fair Labor Standards Act (FLSA) — typically those earning time-and-a-half for working over 40 hours/week.

Income Limits

High earners begin to lose eligibility:

• Phaseout starts at $150,000 for individuals, $300,000 for joint filers
• For every $1,000 over the limit, the deduction is reduced by $100

Also, those earning below the standard deduction ($15,000 single / $30,000 joint in 2025) won’t benefit because they already pay no federal income tax.

Temporary Policy

These deductions apply starting this year but are set to expire after 2028 unless extended by future legislation.

Who It Impacts

• Overtime Workers: About 97.7 million Americans were eligible under the FLSA in 2023, but only 8% of hourly and 4% of salaried employees worked overtime regularly.
• Tipped Workers: Roughly 4 million workers (2.5% of the workforce) were in tipped jobs in 2023. Of these, about 60% of households would benefit, with an average annual tax cut of $1,800, according to the Tax Policy Center.

 

Source: NBC4 Los Angeles