() President Donald Trump’s “one big beautiful bill” is now law, and for millions of Americans, that could mean more money in their pockets.
A signature piece of the legislation delivers on a campaign promise Trump made repeatedly: eliminating federal taxes on tips and overtime pay for most workers.
But how significant will this financial boost be? And when will workers begin to feel these changes?
No more federal taxes on tips, overtime
Starting with the 2025 tax year, workers will no longer be required to pay federal income taxes on qualifying tip income or overtime pay.
The change could potentially impact up to 4 million tipped workers and roughly 97.7 million overtime-eligible employees.
Under the legislation, workers can deduct up to $25,000 of their tipped income and up to $12,500 in overtime earnings from their taxable income.
However, this doesn’t mean they stop reporting those earnings; employers will still withhold taxes throughout the year, and eligible workers will get a refund when they file with the IRS.
According to the White House Council of Economic Advisers, the average eligible worker could save around $1,700 a year through this provision.
Who will benefit most from no taxes on tips, overtime?
The impact of these changes will vary, and not always in favor of the workers who need it most.
While collectively more than 100 million people are eligible to avoid paying taxes on tips or overtime, only 8% of hourly workers and 4% of salaried workers get overtime, meaning many won’t see a direct benefit.
High-end tipped workers, such as servers at upscale restaurants, are likely to benefit far more than those working in lower-wage jobs, where tip amounts are smaller.
The deductions begin to phase out for individuals earning more than $150,000 or couples earning over $300,000.
The law is temporary, set to expire at the end of 2028, just before the end of Trump’s term, unless extended by future legislation.
The change only applies to federal income taxes; workers in states with income taxes will still pay state taxes on tips and overtime earnings.
Limits, expiration date and unanswered questions
Supporters of the bill, including Sen. Marsha Blackburn, R-Tenn., argue the law gives workers greater financial control.
“Knowing that people are going to have more money in their pocket that they can spend on the things in the way they want to spend it for their families, that is a positive for everyone,” she said. “That benefits a growing economy.”
Some tax experts warn low-income workers may see reduced eligibility for tax credits, such as the Earned Income Tax Credit or Child Tax Credit, if they utilize the new deductions, potentially reducing or eliminating their tax refunds.
Several implementation questions remain, including whether tips received via apps like Cash App or Venmo qualify, and which jobs or types of tipping scenarios are eligible.
Until the IRS issues clearer guidance, workers may need to consult tax professionals to determine how to claim and maximize these new deductions.
