No Tax on Overtime, Tips Changed in Senate Bill: What To Know

Published: Tuesday, June 17, 2025 at 12:24 pm

Senate Debates Tax Breaks on Tips and Overtime Pay

Washington, D.C. - Congress is currently considering legislation that would offer tax deductions on income earned from tips and overtime pay. This proposal, a key element of President Donald Trump's economic agenda, was a prominent promise during his 2024 presidential campaign. The initiative is included within the "One Big Beautiful Bill Act," a comprehensive budget bill currently being debated in the Senate.

The Senate Finance Committee has put forth a plan that would allow workers to deduct reported tip and overtime income from their federal income taxes. The House of Representatives is considering a similar, but slightly different, approach. The Senate's proposal would limit tax breaks on tipped income and overtime pay. The Senate plan offers a $25,000 deduction for single filers, which would begin to phase out for those earning a modified adjusted gross income of $150,000, and $300,000 for couples. The list of occupations eligible for the tip deduction is expected to include most service workers and would be published within 90 days of the rule becoming law.

For overtime pay, Senate Republicans propose a $12,500 deduction for single filers, doubled to $25,000 for joint tax returns. This deduction would also phase out at the same income levels as the tip policy. Both plans would still be subject to FICA taxes, which fund Social Security and Medicare. If enacted, these changes would be in effect from 2026 through 2028.

The proposed tax breaks have sparked varied reactions. Some, like Senator Mike Crapo, view the bill as providing tax relief to middle-class families. Others, such as Javier Palomarez, express concerns that the policy could inadvertently reduce tipping, as consumers may perceive it as a government benefit. Experts note that the proposal does not eliminate all taxes on tips, as payroll taxes would still apply. The bill will now be debated by the Senate and then return to the House for a final vote before potentially being signed into law.

BNN's Perspective:

While the proposed tax deductions could offer some financial relief to certain workers, it's crucial to consider the potential unintended consequences. The phasing out of these deductions at higher income levels aims to target benefits to those who need them most. However, the impact on tipping behavior and the overall effectiveness of the policy require careful monitoring.

Keywords: tax on tips, overtime pay, tax deductions, Senate bill, One Big Beautiful Bill Act, Donald Trump, income tax, service workers, FICA taxes, tax relief, economic agenda

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