Latest news with #tippedworkers
Al Arabiya
10-07-2025
- Business
- Al Arabiya
What to know -- and what isn't known yet -- about US tax deductions for tips and overtime pay
Millions of US workers who earn tips and overtime pay may be eligible for a federal tax break when they file their 2025 income taxes next year. But which workers will qualify for the new deductions is among the details the government has to work out after President Donald Trump's signature spending and policy package won final congressional approval. Under the bill Trump signed into law on July 4, the US Treasury Department must publish a list by Oct. 2 of occupations that qualify for tax-free tips. The department is also expected to publish guidance on how to report tips and overtime pay and what documentation will be required. The deduction provisions are not permanent but were written to expire after the 2028 tax year. Overtime pay isn't currently separated out on an employee's W-2 tax form for example, but employers generally keep track of it and itemize it on employees' pay stubs, said Miguel Burgos, a certified public accountant with TurboTax. Employers should continue to withhold taxes while waiting for guidance, Burgos said. The bill doesn't apply to state and local taxes or to federal payroll taxes, which help fund Social Security and Medicare. Here's what we know about tax-free tips and overtime: Who is expected to qualify for tax-free tips? The bill says eligible workers are those who already regularly received tips before December 2024. In the restaurant industry alone, there are 2.1 million tipped servers and bartenders according to the National Restaurant Association. Barbers, hairdressers, nail technicians, and delivery drivers are also expected to be included. Workers must include a Social Security number when they file their taxes to be eligible and a spouse's Social Security number if they're married and filing jointly. How much will eligible workers be able to deduct? Workers will be able to deduct up to 25000 in tips if they make less than 150000 (or 300000 if they're married and filing jointly). The amount workers can deduct is reduced by 100 for every 1000 they make over 150000. Who will see the most benefit from not paying federal taxes on tips? The change will not affect around 40 percent of tipped workers since they already pay little to no income tax according to the nonpartisan Tax Policy Center. The other 60 percent of tipped workers are expected to see an average tax cut of 1800 per year. What kinds of tips will be counted? Both cash tips and credit cards are included. Tips pooled together and then distributed to a restaurant's employees are also included although servers may be less inclined to participate in tip pooling now that they are eligible for a tax deduction. Service charges – such as an automatic gratuity for a large party – aren't included because the bill makes clear that eligible tips must be paid voluntarily. Who will be eligible for tax-free overtime? The Budget Lab at Yale estimates that 8 percent of US hourly workers and 4 percent of salaried workers are regularly paid overtime under the Fair Labor Standards Act, which requires overtime pay of at least time and a half once employees have worked 40 hours in a week. People working in many jobs, including clergy, teachers, and executives, are exempt from federal overtime rules. How much in overtime can workers deduct from their federal taxes? Workers can deduct up to 12500 in overtime (or up to 25000 in a joint return). Like the tip measure, the amount workers can deduct is reduced if they make more than 150000. And they must include a Social Security number when they file. How much of a tax cut is an overtime deduction likely to yield? The average worker is expected to see a tax cut of between 1400 and 1750 per year according to the White House Council of Economic Advisers. According to an analysis by the nonpartisan Joint Committee on Taxation, tax-free tips would reduce federal revenue by 31 billion between the 2026 and 2029 fiscal years, while tax-free overtime would reduce federal revenue by 90 billion during the same period.
Yahoo
10-07-2025
- Business
- Yahoo
‘No Tax on Tips' is now the law: What workers should know about timeline, how paychecks will be impacted
The 'No Tax on Tips' provision, passed and signed into law on July 4 as part of President Donald Trump's One Big Beautiful Bill Act, allows eligible tipped workers to deduct a portion of their income from tips on their federal income taxes. Toronto's strategic emergence as a capital of esports USPS just designed a perfect postage stamp A simple shape turned the Coca-Cola logo into a timeless icon There is a catch: It's only a temporary provision, expiring in 2028, when Trump leaves office at the end of his second term. But the good news is that eligible workers can start deducting up to $25,000 of reported tip income for their upcoming 2025 tax year. Here's what else to know. This is a deduction, not an exemption, which means tipped workers will still need to report their tips when filing their taxes, instead of having the tips automatically taken out of taxable income, per Kiplinger. The provision also does not eliminate payroll taxes (like Social Security and Medicare) on tips, so you'll still need to pay those. The deduction applies for those earning income up to $150,000 a year, or $300,000 for joint filers, which will be adjusted each year for inflation. Furthermore, it applies for 'customarily tipped' workers. The U.S. Treasury Department and Internal Revenue Service (IRS) have yet to issue guidance on which jobs and occupations qualify, so stay tuned. However, the bill is likely to apply to workers that rely on tips, such as hairstylists, nail techs, restaurant servers, and bartenders, per Kiplinger. As Fast Company previously reported, 'No Tax on Tips' also expands the business tax credit for the portion of payroll taxes that an employer pays on certain tips, to include payroll taxes paid on tips received in connection with certain beauty services, just like for restaurants. Finally, the 'No Tax on Tips' provision also applies to overtime pay, and a deduction will be available to eligible taxpayers regardless of whether they itemize. However, filers will have to provide their Social Security number on their 1040 form (or that of their spouse when filing jointly) in order to claim the deduction. This post originally appeared at to get the Fast Company newsletter: Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Fast Company
08-07-2025
- Business
- Fast Company
‘No Tax on Tips' is now the law: What workers should know about timeline, how paychecks will be impacted
The ' No Tax on Tips ' provision, passed and signed into law on July 4 as part of President Donald Trump's One Big Beautiful Bill Act, allows eligible tipped workers to deduct a portion of their income from tips on their federal income taxes. There is a catch: It's only a temporary provision, expiring in 2028 when Trump leaves office at the end of his second term. But the good news is that eligible workers can start deducting up to $25,000 of reported tip income for their upcoming 2025 tax year. Here's what else to know. How 'No Tax on Tips' affects tax filing and paychecks This is a deduction, not an exemption, which means tipped workers will still need to report their tips when filing their taxes, instead of having the tips automatically taken out of taxable income, per Kiplinger. The No Tax on Tips provision also does not eliminate payroll taxes (like Social Security and Medicare) on tips, so you'll still need to pay those. Who qualifies for 'No Tax on Tips'? The No Tax on Tips deduction applies for those earning income up to $150,000 a year, or $300,000 for joint filers, which will be adjusted each year for inflation. Furthermore, it applies for 'customarily tipped' workers. The U.S. Treasury Department and Internal Revenue Service (IRS) have yet to issue guidance on which jobs and occupations qualify, so stay tuned. However, the bill is likely to apply to workers that rely on tips, such as hair stylists, nail techs, restaurant servers, and bartenders, per Kiplinger. As Fast Company previously reported, No Tax on Tips also expands the business tax credit for the portion of payroll taxes that an employer pays on certain tips, to include payroll taxes paid on tips received in connection with certain beauty services, just like for restaurants. No tax on overtime pay Finally, the No Tax on Tips provision also applies to overtime pay, and a deduction will be available to eligible taxpayers regardless of whether they itemize. However, filers will have to provide their Social Security number on their 1040 form (or that of their spouse when filing jointly) in order to claim the deduction.
Yahoo
06-07-2025
- Business
- Yahoo
Will Trump's megabill cut your taxes? Check this number on your tax return for the answer.
The megabill that's bound for the president's desk contains tax breaks that could save some Americans — including tipped workers, employees working overtime, car buyers, seniors and certain homeowners — hundreds or potentially thousands of dollars. The tax and spending bill passed the House of Representatives on Thursday in a 218-214 vote after all-night negotiations, and President Donald Trump signed it into law Friday. That followed a marathon Senate session earlier this week. Now that the megabill has passed, expect a ton of short-term debt to be sold to finance the government's deficit 'I'm single': At 70, I have $500,000 in stocks and $220,000 in savings. How do I invest my $130,000 windfall? 'Today is my 61st birthday': I have my ex-spouse's Social Security benefits. Should I retire at 65 and travel? 'I do all the yard work, cooking and cleaning': I live with my daughter and her lazy boyfriend. She wants me to buy her house. Do I say yes? My wife and I are in our late 60s. Do I sell stocks to pay our $30,000 credit-card debt — or do it gradually over 3 years? Now it's time for taxpayers to take a beat and understand one key piece of tax jargon to see if they qualify for the bill's tax breaks. Trump's 'big, beautiful bill' is full of fine-print rules that let people claim new tax deductions — as long as they don't make too much money. For example, the $25,000 deduction for tipped workers would apply to individuals making up to $150,000, or married couples making up to $300,000. After that, the deduction's value gradually diminishes. The same income boundaries apply on the overtime deduction, which is $12,500 for individuals and $25,000 for married couples. Meanwhile, the $6,000 deduction for people age 65 and older, known as the 'senior bonus,' would be available to individuals making up to $75,000 or married couples making up to $150,000 before phaseouts occur. The deduction of up to $10,000 for American-assembled cars begins fading away after $100,000 for individuals and $200,000 for married couples. The hotly debated deduction on state and local taxes would be worth up to $40,000 this year under the legislation. It would rise slightly higher each year from 2026 to 2029. The maximum income for households claiming the full deduction would be $500,000 this year and incrementally move higher. In 2030, the deduction would fall to $10,000. The array of income rules underscore the complexities that are laying ahead for people, and coming at them fast. These provisions will begin to apply for 2025 taxes — as in, the tax returns people will submit to the IRS next winter and spring. Anyone planning to claim these tax breaks should know their yearly income amount, especially if they think they're just below or above the dividing line to claim the full deduction. They should also know how the Internal Revenue Service is going to count their income to determine whether they're eligible: The bill is using a measure called 'modified adjusted gross income,' or MAGI. Here's how to decode the jargon: What is MAGI? First, the bad news: This measure of income is 'used in a whole lot of different provisions of the law that exist currently, and it can mean very different things,' said Ed Zollars, partner at Thomas, Zollars & Lynch in Phoenix. 'Congress loves reusing the same terms with different meaning.' But the good news is that only a handful of people may need to decipher the full extent of that definition to see if they qualify for the new tax breaks — mostly those who had work abroad, Zollars noted. Everyone else just needs to find out their adjusted gross income to see if they qualify for the bill's breaks, said Andrew Belnap, an accounting professor at the McCombs School of Business at the University of Texas at Austin. A person's adjusted gross income is their total income — or their gross income — from all sources minus certain adjustments, the IRS explains. These adjustments include 'above-the-line' subtractions for alimony payments, unreimbursed teacher expenses, student-loan interest and contributions to health-savings accounts and retirement accounts, as well as certain IRA contributions. AGI is calculated before the standard deduction or itemized deductions reduce the number. Taxpayers can find their AGI on their income-tax return; for 2024 taxes filed this year, it's on line 11 of the 1040 tax form. Modified adjusted gross income, meanwhile, adds back some adjustments in order to determine tax-benefit eligibility — but the IRS acknowledges the measure is 'calculated differently for each benefit.' For the purposes of the bill, a person's MAGI is likely the same as their AGI, Belnap explained. It's rare that a handful of separate tax breaks could take someone's adjusted gross income and increase it, he said: 'For the vast majority of taxpayers, MAGI is the same as AGI.' But certain taxpayers would see a difference between the two amounts. MAGI, as defined in this bill, generally adds back three types of tax exclusions that could bump up a person's AGI, said Zollars. These are the exclusions of foreign-earned income, foreign housing expenses and income earned in U.S. territories including Puerto Rico. When Americans filed 161.3 million tax returns in 2022, fewer than 500,000 of those returns claimed the exclusions and deductions connected to income and housing abroad, IRS statistics show. The deductions on tip income, overtime pay and car-loan interest, as well as the senior deduction, are written to take effect this year. People whose earnings are just over the deductions' income limits may still have time to get them under. The simplest way to accomplish that is by putting more money into tax-advantaged retirement accounts, experts said. 'In most instances where you are actively trying to lower AGI, you are looking at making contributions to certain types of retirement accounts or health-savings accounts,' said Daniel Hauffe, senior manager for tax policy and advocacy at the American Institute of CPAs. People with health-savings accounts can take a deduction on contributions to these accounts intended to defray health costs. Contributions to 401(k)s and retirement plans for self-employed people, as well as certain IRA contributions, can also lower taxable income, Zollars noted. The IRS limits deductions on some or all of a contribution based on income, filing status and whether the person has access to retirement plans at work. Qualified charitable distributions from an IRA may also help older taxpayers lower their adjusted gross income, Zollars said. This year, individuals at least 70½ years old can donate up to $108,000 to qualified charities while also lowering their AGI. The trick, Zollars added, is to figure out which contributions would lower a taxpayer's AGI and see how that fits into the rest of their financial life. There's 'all those games you can play,' he said. What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out or write to us at . A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission. My wife and I have $7,000 a month in pensions and Social Security, plus $140,000 cash. Can we afford to retire? 'Finance makes me break out in hives': I inherited $240K from my parents. Do I pay off my $258K mortgage and give up my job? The Dow and Russell 2000 are joining the stock market's party. Is it a game changer for the bulls? My job is offering me a payout. Should I take a $61,000 lump sum — or $355 a month for life? I'm a stay-at-home mom. Do I take a part-time job to spend more time with my kids — or get a job for six figures? Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CBS News
04-07-2025
- Business
- CBS News
Florida tipped workers get new tax break under President Trump's "big, beautiful bill"
Tipped workers and hourly employees who rely on overtime are getting a new financial break, thanks to a budget measure signed into law by President Donald Trump. The newly signed bill, which Trump has dubbed his "big beautiful bill," allows tipped workers to deduct up to $25,000 a year in reported tips and lets all hourly employees deduct up to $12,500 in overtime earnings. The measures are aimed at easing the tax burden for service workers, particularly those in the restaurant and hospitality industry. How much tipped workers and overtime earners can deduct under new Trump-backed law "That's like 90% of my income right there," said bartender Hugo Llanos, referring to the tips he earns behind the bar. "A little bit more money on working people's pockets and it gives us an opportunity to enjoy our cities a little bit more," he added. According to a 2023 study by tips make up about 21% of a Florida restaurant worker's income. The same is true in other states, including Ohio, where visitor Hannah Soltay works as a server. She said the new tax break ensures that consumer generosity actually benefits the intended person. "It means more knowing that the money you meant for a person is actually going to the person," Soltay said. Llanos said the ability to deduct up to $25,000 in tips will be a welcome change. "Just based off my taxes last year I probably doubled that or tripled that," he said. A White House report released in May estimated that the average tipped worker could save just under $1,700 a year under the new provisions. However, the relief is temporary — both the tip and overtime deductions are set to expire in 2028 unless extended by future legislation.
