Trump signs his sweeping tax and spending bill on the Fourth of July
President Donald Trump signed his sweeping tax cut and spending bill on the Fourth of July.
- President Trump signed a bill offering tax breaks on tips and overtim as part of his ‘Big beautiful bill.’
- Workers can deduct up to $25,000 in tips and $12,500 in overtime pay.
- The deductions are effective this year and expire at the end of 2028.
(An earlier version of this story overestimated how much workers could save in federal taxes under President Donald Trump’s “Big, Beautiful Bill” and did not apply progressive tax brackets. The examples in the story have been updated.)
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:
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. Earning more than the thresholds — $12,500 in overtime and $25,000 in tips — doesn’t wipe out the benefit. It just means anything above those limits is fully taxed.
Here are some examples of how the tax breaks could shake out:
- A police officer earning a $75,000 base salary and another $15,000 from overtime would pay federal income taxes on only $2,500 of those extra earnings.
- A high-end restaurant sommelier earning an $80,000 salary and collecting generous tips could hit the cap on tip deductions and still save thousands on their tax bill.
- Midrange earners stand to see meaningful savings, too. A warehouse supervisor earning $60,000 with $10,000 in overtime could shave a couple thousand dollars off their federal tax bill.
- A hotel bartender making $45,000 plus $5,000 in tips could get back all the federal taxes withheld from their tips.
For lower-income workers, the impact is more modest.
- A retail employee earning $28,000 with some overtime, or a diner server making $20,000 in wages and tips, could deduct all of their extra earnings — but with incomes low enough that standard deductions already erase most federal taxes, their refunds might grow by only a few hundred dollars.
It’s important to note this isn’t an immediate paycheck change. Employers will still withhold federal taxes from tips and OT throughout 2025. 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 [email protected]. Follow her on X and TikTok @kinseycrowley or Bluesky at @kinseycrowley.bsky.social.