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Trump’s One Big Beautiful Bill Enacts Above-the-Line Deductions for Tips and Overtime

IRS guidance on claiming the deductions is due later this year following questions over who stands to benefit most

President Donald Trump's new tax law includes a deduction for some tips. However, not all workers will qualify.
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Overview

  • Above-the-line deductions of up to $25,000 for tips and $12,500 for overtime apply to tax years 2025 through 2028.
  • Individuals earning up to $150,000 qualify for full deductions, with relief phasing out for higher incomes.
  • The law is part of a major Republican package that continues 2017 tax cuts, trims Medicaid and SNAP funding, and allocates billions for border security.
  • Critics argue the temporary tax breaks disproportionately favor middle- and higher-income workers and could widen federal budget deficits.
  • Treasury and the IRS are slated to issue detailed regulations this year on eligibility criteria and documentation requirements for the new deductions.