Trump's Tax Cuts: No Taxes on Tips & Overtime? What Workers Need to Know!
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Trump's 'Big Beautiful Bill': Tax Breaks for Tips and Overtime
President Trump's "Big Beautiful Bill" is now law, and it includes some significant tax breaks for workers who earn tips and overtime. This new legislation aims to provide financial relief to those struggling with rising costs, but tax experts say there are a few things workers should know before next tax season.
What's Included in the Bill?
The bill provides a tax break on both tips and overtime pay. Workers can deduct up to $25,000 in tips, provided they "customarily and regularly receive them, like servers." They can also deduct $12,500 in overtime pay. However, this temporary law is set to expire on December 31, 2028.
Who is Eligible?
Individuals earning more than $150,000 will still be eligible for these deductions, but the amount they can deduct will be reduced. This provision aims to provide tax relief to a broad range of workers, but some experts have raised concerns about fairness.
Potential Concerns and Criticisms
While the tax breaks have garnered widespread support, some analysts argue that they could create tension among employees. For example, a server in a restaurant might be exempt from paying taxes on tips, while a retail worker earning the same amount is not. This could be seen as arbitrarily rewarding some workers over others facing similar financial circumstances.
Abir Mandal, a senior policy analyst at the Tax Foundation, notes that these provisions could disadvantage workers unable to access tipped or overtime-heavy roles, such as those with caregiving responsibilities or fixed schedules.
When Does it Go Into Effect?
The deductions are effective this year and expire at the end of 2028. Workers should consult with a tax professional to understand how these changes will impact their individual tax situations.
The Future of Tax Fairness
The introduction of a tax break for tips and overtime has ignited a debate about what constitutes tax fairness. As this provision is implemented, it will be important to monitor its effects on various sectors of the workforce and ensure that it promotes equity and economic opportunity for all.