The Senate’s passage of the One Big Beautiful Bill Act marks a significant shift in tax policy for working Americans. Among its key provisions, the bill introduces substantial changes to the taxation of tips, overtime pay, and Social Security benefits.
These reforms, if passed in the House and signed into law, will impact millions of workers and retirees across the United States. The bill promises to lower the tax burden for various groups of workers, particularly those in tipped professions or hourly jobs.
While these tax cuts are framed as a victory for the working class, critics caution that the benefits may not reach the intended groups equally.
No Tax on Tips: A Tax Break for Service Workers
One of the bill’s major provisions is the elimination of federal income taxes on tips, which could significantly affect industries like hospitality and personal services.
According to the White House, the change will allow tipped workers, such as restaurant servers, bartenders, and hairdressers, to deduct up to $25,000 of their tip income from their taxable wages. This provision is designed to help those who rely on tips for a substantial portion of their income.
However, the benefit phases out for high earners, with individuals earning above $150,000 and couples above $300,000 no longer eligible for the deduction.
While this may appear to benefit low-wage workers, experts point out that many of these workers already fall below the income threshold for federal income tax liability, limiting the effectiveness of the deduction for the most financially vulnerable.
Overtime Pay: What the New Tax Reform Means for Hourly Workers
Another significant aspect of the tax bill is the tax deduction on overtime pay. Workers who regularly put in extra hours beyond the standard 40-hour workweek would be allowed to deduct up to $12,500 in overtime earnings from their taxable income, with joint filers eligible for up to $25,000.
This provision aims to provide financial relief for those in hourly wage roles who work additional hours.
The Tax Policy Center estimates that only a small percentage of American households will benefit from this change, with just 2 percent of households likely to see significant tax savings.
Moreover, workers earning under $33,000 annually are unlikely to see much benefit from this reform, with only a small percentage gaining an average of around $450 per year. Despite these limitations, proponents argue that it will reward the effort of workers who regularly put in extra time.
Changes to Social Security Taxation: Limited Relief for Seniors
The One Big Beautiful Bill Act also includes changes to Social Security taxes. While the bill does not eliminate the taxation of Social Security income altogether, it raises the standard deduction for seniors aged 65 and above by up to $6,000, which could help shield more of their income from federal taxes.
This provision is aimed primarily at lower- and middle-income seniors who might otherwise be subject to taxes on their Social Security benefits.
However, the deduction phases out for those with incomes exceeding $75,000 for individuals or $150,000 for couples, meaning that wealthier seniors will not benefit from this change. Critics argue that while it provides some relief, it falls short of broader reforms needed to ease the tax burden on seniors.