US President Donald Trump has signed on Friday, 4 July 2025, the controversial One Big Beautiful Bill Act (OBBBA) into law, delivering on his campaign promise to eliminate taxes on tips and overtime pay.
How No Tax on Overtime Policy Works
The Trump OBBBA's no tax on overtime policy works by exempting employees from taxes on their tips or overtime salaries. It will allow American workers to deduct $25,000 (£18,380) in tips each year from their taxable income. This means that they'll be able to keep more of their earnings.
However, if you're earning over $150,000 (£110,240) annually, their tips will be taxed. This new legislation is set to be in effect this 2025 until 2028. The Trump administration boasts this new policy, claiming that it could greatly boost the salaries received by working-class Americans.
'If you look at the data on tipped income, that would cover the majority of individuals earning tips in the United States.' said Tax Foundation's Garrett Watson. He added that what the new policy offers is pretty generous for most working Americans.
Donald Trump Keeping His Promise
Before winning his second presidential term, Donald Trump has been promising the no tax on tips policy in his 2025 campaigns. The American leader shared how he got this idea. He said that he got it from a tipped worker in Las Vegas.
Aside from him, ex-US Vice President Kamala Harris also used this policy in her campaigns, saying that she'll eliminate taxes on tips if she wins the presidential election. Watson said that American workers could soon see the benefits of the no tax on overtime policy within the year. But, it'll depend on how fast the IRS and the Treasury Department work on it.
US Restaurants Oppose No Tax on Overtime
While many people support the new no tax on overtime provision, many US restaurants are complaining about it. They agree that this policy could benefit some employees, but warned that it could also cause bigger issues in the way tipped workers are paid.
An appeal was already sent the Congress. It came from the Independent Restaurant Coalition, which includes around 100,000 restaurants and bars. The group is also supported by some tipped workers who oppose the policy.
'I think there's a huge hole in this concept of 'no tax on tips' because a lot of restaurant workers aren't receiving tips in the first place,' said Restaurant Workers United President Elyanna Calle, who also works as a bartender in Austin, Texas.
She added: 'It's not helping most kitchen workers, and oftentimes those are the people who are being paid the least.'
Restaurants and workers aren't the only ones opposing the no tax on overtime policy. Some experts also don't believe it would have a long-term impact on the economy. One of them is Yale Budget Lab Executive Director Martha Gimbel, a former Biden admin official.
'Very low income Americans are not going to benefit from this, largely because they already have little to no taxable income,' she explained.
Gimble further explained: 'And so what you are largely seeing is that this provision will benefit people who are in the middle, upper-middle income brackets.'
