An analysis of Trump’s stance on taxing tips and overtime deductions

Tax Changes from Trump’s New Spending Bill

President Trump has introduced a significant spending bill that includes various tax modifications, and it’s drawing attention to how these changes might benefit workers.

For those filing income taxes in 2025, millions of U.S. workers, particularly those who earn tips or receive overtime pay, could be in line for federal tax deductions. However, the specifics about which workers will qualify are still being worked out.

As per the bill signed on July 4th, the U.S. Treasury is expected to release a list of eligible occupations for tax-free tips by October 2nd. There will also be guidelines on reporting overtime payments and necessary documentation.

This deduction isn’t permanent, though; it is set to expire after the 2028 tax year.

Currently, overtime pay isn’t itemized on W-2 forms, but employers do track it and include it on pay stubs, noted Miguel Burgos, a certified public accountant at TurboTax.

Beginning this year, workers can deduct $12,500 for overtime, while joint filers can claim up to $25,000.

The deduction phases out for single filers earning over $150,000 and $300,000 for joint filers. It’s a pretty significant relief for qualifying individuals.

Kate Ashford from Geek Wallet pointed out, “This is a big deal for people earning this income, but there are limits.” The deduction only applies to half of the overtime hours worked and half the salary, initiating in 2025.

The new legislation will also permit a deduction of up to $25,000 for tips, available starting this year.

This deduction can apply to many workers, whether they receive tips or not. However, if income exceeds $150,000, it will decrease gradually.

Interestingly, many people currently receiving tips fail to report them. “This will push individuals to declare their tips, which is noteworthy since not everyone is reporting cash earnings,” Ashford remarked.