Not all of Trump’s promises to cut taxes on tips, overtime, and Social Security were included in the proposed tax bill. The parts that were included are only temporary and come with some limits.

After the Ways and Means Committee shared a draft of the tax bill, and then a revised version, people had questions. The biggest one was: Did Trump keep his promise to stop taxes on tips, overtime, and Social Security? The answer is not so simple.

No Tax on Tips

While campaigning in Nevada in June, Trump promised to stop taxing tips. This was important in Nevada, where many people work in hospitality jobs. The promise wasn’t in the first draft of the bill, but it was added later in the chairman’s updated version.

In the current plan, workers in jobs where tipping is common could deduct tip income from their federal taxes, but only for the years 2025 through 2028. This only applies to industries that already accepted tips by the end of 2024. The Treasury Department will make a list of which jobs qualify.

Self-employed workers, like Uber and Lyft drivers, could also get this tax break.

However, people earning more than $160,000 in 2025 wouldn’t qualify. Also, to prevent people from finding loopholes to avoid taxes, the Treasury is supposed to set rules to stop people from falsely claiming regular income as tips.

It’s also important to know this is a deduction, not a full exclusion. That means tips still have to be reported and are still taxed at the state and local levels. They are also still subject to payroll taxes like Social Security and Medicare.

Tax Break for Employers on Tips

Since 1993, restaurants have been able to claim a special tax credit called the 45B credit. This credit gives them back the money they pay in Social Security and Medicare taxes (called FICA taxes) on employee tips. The credit applies to businesses that serve food or drinks.

However, other tipped businesses—like hair salons—don’t get this credit. So, both the employee and the employer still have to pay payroll taxes on tips, even though the salon doesn’t keep any of that money.

A new tax proposal aims to change that. It would extend the 45B credit to include the beauty industry—such as barbers, hair and nail salons, estheticians, and spas.

No Tax on Overtime Pay

Former President Trump also promised to stop taxing overtime pay. He first made this promise in a speech in Arizona in September 2024. This idea wasn’t in the original tax bill, but it was added later by the committee chairman.

If passed, this change would mean that workers wouldn’t pay income taxes on their overtime pay—only the extra pay they get for working more than their regular hours. You wouldn’t need to itemize your taxes to get the benefit, but it would only last from 2025 to 2028.

Important note: This would be a deduction, not an exclusion. That means overtime pay would still be reported on your tax return and would still be taxed for Social Security and Medicare.

Quick Guide to Payroll Taxes

Are you confused about payroll taxes and who pays what? Here’s a simple explanation:

If you work for someone else, Social Security and Medicare taxes are taken from your paycheck. These are called FICA taxes (Federal Insurance Contributions Act). Your employer also pays the same amount on your behalf.

If you’re self-employed, you pay SECA taxes (Self-Employment Contributions Act), which means you pay both the employee and employer parts yourself.

Social Security Tax

  • If you’re an employee, you pay 6.2% for Social Security, and your employer pays another 6.2%.

  • If you’re self-employed, you pay the full 12.4% yourself.

There’s a limit on how much of your income is taxed for Social Security. In 2025, the limit is $176,100. This means:

  • You pay Social Security taxes on income up to $176,100.

  • Any income above that amount is not taxed for Social Security.

Medicare Tax

  • All of your income is taxed for Medicare—there’s no limit.

  • Employees pay 1.45%, and employers also pay 1.45%.

  • Self-employed people pay the full 2.9%.

If you earn a high income, you may pay an extra 0.9% Medicare tax:

  • Over $200,000 if you’re single,

  • Over $125,000 if married and filing separately,

  • Over $250,000 if married and filing jointly.

How Payments Work

  • If you’re an employee, your employer sends both your share and their share of taxes to the government.

  • If you’re self-employed, you send the taxes directly to the IRS.

Even though it might feel like a lot, these taxes help fund your future retirement benefits.

No Tax on Social Security?

During his campaign, Trump said he would remove taxes on Social Security income. Many people liked the idea, but it’s important to know how this works now.

Most people who receive Social Security don’t pay federal income tax on it. The Social Security Administration says only about 48% of recipients pay any federal income tax.

If Social Security is your only income, it usually isn’t taxed, and you might not even need to file a tax return.

If you have other income, your Social Security may be taxed—but only if your total income goes over a certain limit. Even then, no more than 85% of your benefits are ever taxed.

There’s no law right now that changes this. However, there’s a new temporary tax deduction of $4,000 planned for tax years 2025 through 2028.

The tax deduction would be available to people who itemize their taxes and to those who take the standard deduction. However, the benefit starts to go away when income reaches $150,000 for married couples filing together and $75,000 for everyone else. It disappears completely when income hits $350,000 for married couples or $175,000 for others.

To get the deduction, you must have a Social Security number. If you’re married, your spouse must have one too.

This deduction is not like a refundable tax credit. That means if you don’t owe much (or any) tax—like many people who only get Social Security—you won’t get any money back. The deduction just doesn’t apply. So, it won’t really help seniors who only rely on Social Security. It mainly helps people who have other income in addition to Social Security.

What’s Next

You can read the original version of the bill here, and the version with changes (called the Smith amendment) here.

The bill is still being reviewed in the House of Representatives, where Republicans have a small majority. Even if the House approves it, the bill must match the Senate’s version before it can become law.

Published: 20th May 2025

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