On the campaign trail, President Donald Trump promised to eliminate taxes on tips and overtime. A version of that promise made it into the “big beautiful” tax-and-spending package he signed into law on Friday, but it comes with some strings attached.
The bill includes two provisions that create above-the-line deductions for both tips earned in traditionally tipped occupations and for overtime pay. This means workers can subtract earnings from tips and overtime from their taxable income, effectively exempting those amounts from federal income tax.
However, not all workers will be eligible for the deduction, and there are some caveats for how much you can deduct and which taxes are eliminated.
Here is a breakdown of what the bill says.
The amount workers earn from tips and working overtime won’t be completely tax free. The exemption only applies toward federal income tax. Federal payroll tax — a flat tax split between employers and employees to fund Social Security and Medicare — will still apply to any earnings.
