Mitchell explained that the legislation is designed to help individuals keep more of what they earn. “The idea is very simple. It’s to reward those people so they can keep more of what they earn in their pockets,” he said. “And specifically, it’s those folks that work above 40 hours, that work overtime, that make a living on tips. Those are the folks that benefit most.”
The bill provides a federal income tax deduction for up to $25,000 in tipped income and up to $12,500 in overtime pay for single filers (or $25,000 for married couples filing jointly). These deductions apply to income earned between 2025 and 2028.
Importantly, the deduction is limited to individuals earning less than $150,000 per year. This income cap is intended to prevent high earners from misclassifying income as tips to avoid taxation. Additionally, the provision applies only to those in jobs that “customarily and regularly receive tips.
Although the deductions offer some financial relief, taxes will still be withheld from paychecks in real time. Eligible workers will claim the deductions when filing their federal returns, and state taxes will remain unaffected.
Click here to learn more.
Enter your information below and our team will contact you.
