Trump touts ‘big beautiful bill’ tax breaks. Here’s how they work

As Americans prepare for the start of tax season next week, several new tax breaks are on the table as part of President Donald Trump’s “big beautiful bill.” 

“We passed the largest tax cuts in American history, including no tax on tips, no tax on overtime, no tax on Social Security for our great seniors,” Trump said in a speech at the World Economic Forum in Davos, Switzerland, on Wednesday.

According to the Tax Foundation, the One Big Beautiful Bill Act that Trump signed into law last summer represents the country’s sixth-largest tax cut, and is expected to reduce federal tax revenue by $5 trillion from 2025 through 2034.

Experts expect the new law to result in larger tax refunds for many Americans this spring.

But despite the “no tax on…” framing, the new measures generally do not eliminate the tax obligation entirely for tips, overtime, and Social Security, experts say.

“Americans should understand that whenever you hear ‘no tax,’ it’s never that. There are always caveats,” said certified public accountant Sheneya Wilson, founder and CEO of Fola Financial in New York.

Taxpayers must figure out a few details first, she said: “It starts with whether it’s a deduction or credit, and whether you’ll be eligible based on your income level.” Deductions reduce taxable income, and credits reduce tax due. 

The three tax breaks Trump referenced are all temporary and in effect from 2025 through 2028. They are federal breaks; state and local taxes may still apply.

Here’s how they work, and what taxpayers need to know about them before filing:

The new tax law allows certain workers to deduct up to $25,000 of “qualified tips” per year on federal returns. The tips deduction phases out once modified adjusted gross income exceeds $150,000 for single filers or $300,000 for married couples filing jointly.  

Not all tipped workers are eligible. Some occupations don’t qualify for this deduction. Some low-income workers may not benefit from this tax break because they won’t pay federal income tax, given the 2025 standard deduction. 

Also, this tax break does not include tips received “under the table,” Wilson said. “Your tips must be reported on your W-2 or 1099, and then you can take the deduction on that income. “If you have W-2 income — hourly wages plus tips — it will not reduce your normal taxable wages; it will only reduce the tip portion.”

This is a tax break only for overtime pay, not all wages. In a blog post, payroll company ADP offers this example: If you were paid $10 an hour for non-overtime earnings, and $15 per hour for overtime, only the $5-per-hour premium pay for overtime is eligible for the tax deduction. 

As you prepare your 2025 return, “make sure you have your last pay stub and that it shows how much of your pay was properly calculated as overtime,” Wilson said.

This tax break “applies to all income you earn via time and a half,” she said. “It will typically be on your final pay stub. The W2 won’t explicitly state how much of the pay was overtime.”

The 2025 tax law offers a “bonus” deduction of up to $6,000 for Americans age 65 and older and up to $12,000 for married couples filing jointly to reduce the amount of federal income subject to tax. The measure does not affect how Social Security is taxed, and people do not need to have claimed Social Security benefits to qualify for the deduction. 

Eligibility for this tax break depends on income. Taxpayers with up to $75,000 in modified adjusted gross income — or up to $150,000 if married and filing jointly — may receive the full deduction. For incomes above those thresholds, the deduction gradually phases out. 

Even if you didn’t make the most of the break on your 2025 return, experts say to take steps now to manage your income and take advantage of the deduction in the future. 

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