No tips tax? Congress examines it.
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Days after the Committee of the ways and means published by a draft version of the tax bill followed by a replacement of amendment, questions began to fly. Top on the list: Did Trump keep his promise to terminate taxes for tips, overtime and social security? The answer is not as simple as you think.
No tax on advice
Trump initially promised to terminate taxes on tips while campaigning in June in Nevada’s swing. The hospitality industry is huge in Nevada, making more than 20% of the state jobs. The promise did not make it to the draft bill, but it did so in the president’s amendment, which was introduced on Monday.
As suggested, revenue from the edges will be temporarily deducted – only for tax years 2025 by 2028 – for people who work in what they are considered “traditional and usually upgraded industries”. (According to the proposal, this would include only industries that have accepted tips for or before December 31, 2024 – The case is aimed to create a list of those who meet the conditions.)
Self -employed, such as Uber and Lyft drivers, will also qualify for the break as they are written today.
Employees who are highly offset (those who make more than $ 160,000 in 2025) will be excluded. And, in a nod to concerns that all sudden, smart tax lawyers, business owners and others could move their way into a tax -free zone, the Treasury is heading to create regulations or other guidance to “prevent it from recovering it”.
It is important to note that this is a federal income tax deduction, not exclusion. This means that tips will still be reported – and taxable at state and local level. It also means that advice will remain subject to payroll taxes, including social security and Medicare, for employees.
However, employers will take a break through credit. Removal, which has entered into force since 1993 for restaurants, is known as a 45B credit and allows a discount on the entire side of Fica taxes on advice. The guidelines for claiming the 45B credit have made it clear that it covers advice to employers involved in the “supply, delivery or service of food or beverages for consumption”. The result is that Tips provided elsewhere – as in lounges– They are subject to payroll taxes for both employees and employers, even though it does not go to the living room.
The latest tax account proposes to change this by expanding the benefit to the beauty industry. According to the amendment, Article 45B will be amended to include barber and hair care, nail care, aesthetics and body treatments and spa.
No Tax for Overtime
Trump also promised to eliminate overtime taxes. This promise was initially made in September 2024, during a speech at Tucson, Arizona. This break also did not do it in the draft bill, but it did it on the president’s amendment.
As suggested, employees receiving overtime would not have to pay taxes for additional compensation. For the purposes of the rule, overtime offset is defined as the amount paid above the employee’s normal interest rate – only overtime offset is part of the break. While taxpayers would not have to analyze to benefit from the benefit, it would be temporary – only for the tax years 2025 by 2028.
This tax break is also suggested as a deduction, not as an exclusion. This means that overtime will still be reported and, as is the case with tips, overtime will remain subject to payroll taxes, including social security and Medicare, for employees.
Quick payroll tax boot
Did you get confused about the employer against payroll taxes? For employees, Social Security and Medicare are called FICA (ACT Federal Insurance Componsions Act) and are deducted from your paycheck. Taxes on self -employment revenue are sometimes called SECA taxes (self -employment law), as self -employed pay both workers and employer contributions.
If you are working, you pay a social security tax at 6.2% as an employee and your employer pays the same tax rate on your behalf. If you are self -employed, you are responsible for both parties.
Social security taxes are subject to a wage ceiling. This means that you pay social security taxes in your profits until you hit the magic number. After that, your salaries are no longer subject to social security taxes. For 2025, the magic number is $ 176.100. This means that if you make $ 1,000 or $ 100,000, you will pay social security taxes for your income. But if you earn $ 176.101? You will pay social security taxes in the first $ 176,100, but not on the extra dollar. And if you earn $ 1,176,100? The same result: You will pay social security taxes at $ 176,100, but not for the extra million.
On the contrary, all wages are subject to Medicare taxes. If you are working, you pay the Medicare tax 1.45% as an employee and your employer kicks at the same rate tax. As before, if you are self -employed, you will pay both sections for a total tax rate of 2.9%.
High-income taxpayers are also subject to an additional 0.9% Medicare tax on salaries exceeding $ 200,000 for individual files-these thresholds are $ 125,000 for married taxpayers who deposit separately and $ 250,000 for married taxpayers.
If you are a tenant, your employer collects social security and Medicare payments and delivers both your share and your share of government. Self -employed pay directly the IRS. Maintaining payroll taxes on tips and overtime can mean more taxation during taxation, but there is an upward course: no matter who pays, these taxes are credited to the retirement benefits.
No tax on social security
Last year, also on the campaign trail, Trump promised to free social security revenue. The idea was popular, but probably because many people do not understand how social security income is taxed. The majority of people receiving social security do not pay federal income tax for these benefits – according to the Social Security Service, only about 48% of people pay federal income taxes for their benefits (although some studies indicate that the rate is higher).
If your only source of income is social security control, your benefits are generally not taxed. You may not even have to submit a federal income tax return.
If you receive income from other sources, your benefits will not be taxed unless your combined income exceeds the basis for deposit status and then the taxable amount is based on income. No one pays federal income tax in over 85% of social security benefits.
There is no language in the draft bill or amendment that will further exempt social security from tax. However, the proposal includes a new temporary temporary protection of $ 4,000 for 2025 to 2028.
Removal would be available to taxpayers who analyze and those who claim the standard discount. It would start gradually when the income hit $ 150,000 for married taxpayers jointly and $ 75,000 for all other taxpayers (they completely disappear when the modified adjustable income reaches $ 350,000 for married taxpayers and $ 175,000).
To claim the discount, you need to have a social security number and, if you get married, your husband should also have a social security number.
The discount is not the same as the return of credit. This means that you will not receive benefit if you have little or no taxable income – the case for most social security recipients. Removal simply disappears. Realistically, the discount will not help the elderly with few and other sources of income outside social security and will mainly benefit those with income other than social security.
What’s coming next
You can see the original version of the account before marking here. The Smith modification issue is here.
The bill still works at home where Republicans hold a subtle majority. Even if approved, the body’s bill must comply with the adoption of the Senate signed in the law.
Continue to check our coverage for more details.
