President Donald Trump on July 4 signed into law a megabill that he has dubbed the “Big Beautiful Bill” and includes a number of policies he promised on the campaign trail.
The bill passed the House of Representatives the day before after an intense debate in the Senate, where some members of his own party voted against it with complaints on the bill’s price tag and the cuts to Medicaid.
But Trump touted his “promises made, promises kept,” as he signed the legislation on the White House’s South Lawn on the 249th Anniversary of the Declaration of Independence.
Of those promises, the bill includes tax breaks on tips and overtime. Here is what to know:
More: Will Trump’s big tax bill help or hurt you? Why it could depend on your income
Does the bill include no tax on overtime?
Yes, the bill includes a tax break for overtime and tips.
Workers will be able to deduct up to $25,000 in tips (so long as they “customarily and regularly receive them, like servers). Workers can also deduct $12,500 in overtime pay, but the temporary law ends Dec. 31, 2028, shortly before Trump leaves office.
Individuals earning more than $150,000 will be eligible, but for reduced deductions.
When will the tips, overtime deduction go into effect?
This year. The deductions are in effect for taxable years starting Jan. 1, 2025.
What no tax on tips or overtime mean for workers
The deduction method means workers won’t see an immediate boost in take-home pay, but the deduction could mean better news after filing taxes.
The tax break sounds universal, but it’s slanted toward middle- and higher-income earners — workers who owe enough federal income tax for the deductions to make a real difference. Here are some examples of how the tax breaks could shake out:
A full-time restaurant worker earning $40,000 base salary and $20,000 in tips could deduct all of their tips. If they also pull in $10,000 in overtime during the year, they’re nearly maxing out both deductions. At a 22% tax rate, that’s potentially $7,700 in federal tax savings.
Overtime is common in healthcare. A nurse earning $80,000 salary and $15,000 in overtime could deduct all their extra hours, saving thousands in federal taxes.
A union electrician pulling in $85,000 base and $12,500 overtime would also qualify for the full deduction.
But some tipped and overtime workers won’t see much benefit, if any.
A diner waitress earning $15,000 in wages and $10,000 in tips already falls into a bracket with little to no federal income tax liability after standard deductions. The new break wouldn’t change their refund much.
A college student bartending weekends might bring in $6,000 in tips — too little to see a major tax impact.
The federal tax system is progressive: the more you make, the more you owe. That means deductions like these give the biggest benefit to those with significant taxable income. Plus, state income taxes still apply.
Contributing: Zac Anderson, Bailey Schulz, Jim Sergent, Janet Loehrke, USA TODAY
Kinsey Crowley is the Trump Connect reporter for the USA TODAY Network. Reach her at kcrowley@gannett.com. Follow her on X and TikTok @kinseycrowley or Bluesky at @kinseycrowley.bsky.social.
This article originally appeared on USA TODAY: No tax on overtime? When Trump bill starts, how long it lasts
