Congress eliminates taxes on tips for hourly workers

In the United States, Congress recently approved a significant piece of legislation known as the One Big Beautiful Bill Act, which includes a range of tax reforms and additional provisions affecting workers, particularly those who earn tips. This bill was enacted in late June 2025 and represents a culmination of legislative efforts spearheaded by President Donald Trump's administration. Among its most notable features is the introduction of a temporary tax exemption for tips earned by hourly workers, allowing them to deduct up to $25,000 in tips annually from their taxable income. Reports indicate that this measure is aimed at benefiting middle-class workers, particularly in the service sectors such as hospitality and personal grooming services where tipping is commonplace. The Tax Foundation's Garrett Watson highlighted that this deductible amount would likely cover the majority of individuals who earn tips across the nation. However, the legislation also stipulates that workers earning more than $150,000 annually will begin to pay taxes on their tipped income, placing some limitations on the benefits of the exemption. Critical reactions to the bill have emerged both in support and opposition. Proponents argue that it is a win for the middle class, preserving tax cuts and expanding credits for families while ensuring that hardworking tipped employees receive a fairer compensation for their labor. The elimination of taxes on overtime and tips is positioned as a necessary reform to build economic growth and provide relief to working Americans facing rising costs. Conversely, there are concerns from various groups regarding the regressive nature of the overall bill. Experts point out that lower-income individuals, particularly those who already have low taxable income, might not see much benefit from the new measures, while the broader tax reforms could adversely affect welfare programs like SNAP and Medicaid. Critics contend that this legislation could be perceived as a Robin Hood-style maneuver in reverse, suggesting that the most vulnerable in society may not reap the expected rewards of the economic policies espoused. Overall, the finalization of the One Big Beautiful Bill marks a significant political achievement for the GOP as they move into the midterm election season, showcasing a commitment to economic reforms aimed at assisting the middle-class while igniting debates about the equity and fairness of these tax policies.