Don’t Miss Out: Understanding How Trump’s ‘Big, Beautiful Bill’ Eliminates Taxes on Tips

Changes to Taxes for Tipped Workers: A Closer Look

Tipped workers in the U.S. are facing some significant tax changes. Congress recently passed the One Big Beautiful Bill Act, a major spending and tax package championed by President Trump. This new law creates a temporary tax deduction for tips, allowing workers to deduct up to $25,000 from their taxable income.

Garrett Watson from the Tax Foundation notes this will benefit many individuals who rely on tips. “This provision covers the majority of tipped workers,” he explains. However, if a worker earns over $150,000 a year, their tipped income will start being taxed. This measure aims to prevent high earners from manipulating their income to avoid taxes.

One major concern during the negotiations was that some wealthy individuals, like hedge fund managers, would categorize their income as tips to dodge taxes. The new law specifies that only workers in occupations where tipping is routine can take advantage of these benefits, although it does leave some job titles undefined.

Historically, the “no taxes on tips” policy has bipartisan support, including from both Democrats and Republicans. While it received praise for its potential to help low- and middle-income workers, some policymakers argue it can lead to more significant issues, such as cuts to Medicaid, which may leave millions uninsured.

Martha Gimbel from the Yale Budget Lab comments on the broader implications of the law, cautioning that it may not significantly impact most Americans. “Tipped work is just a small part of the labor market, only about 2.5% of jobs,” she says. Many low-income tipped workers won’t benefit as they already have little to no taxable income.

On social media, reactions are mixed. Some tipped workers express optimism about potential tax refunds, while others worry that the benefits will primarily favor those in higher income brackets. Gimbel adds that the bill’s overall regressiveness could offset any positives from the tax exemption on tips.

As the IRS and Treasury prepare to implement these changes, tipped workers should stay informed. Considering filing updates may be necessary to reflect the new laws. Watson anticipates many will utilize software for tax preparation next filing season, making it easy to incorporate these new rules.

In summary, while the new provisions on tipped income seem promising for many workers, experts advise caution regarding the broader implications of the One Big Beautiful Bill Act. The future impact on wages and benefits remains uncertain, but discussions on this topic are crucial for understanding its real-world effects on the workforce.

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