The Senate has approved a $25,000 tax cut for cutting-edge workers
The Senate unanimously passed a bill that would allow workers to receive tips to subtract cash tips up to $25,000 from taxable income.
No Brands – News Value
The Senate announced this week a revision of the law called “One Big Beautiful Bill” by President Donald Trump, but it may be doubtful whether it’s better for the average American than the House bill, some experts say.
The Senate’s version of the mega-tax bill maintains general benefits such as no tax on overtime or tips, additional tax credits for those over 65, and state tax (salt) deductions.
However, if passed, the Senate tweaks may not be beneficial to individual taxpayers, some accountants said.
There are no taxes on tips and overtime allowances
Tips and elimination of taxes on overtime pay was one of President Donald Trump’s most popular campaign promises, and the Senate held it, but there was a cap.
For hints, the Senate will offer a deduction of up to $25,000 for both overtime pay and hints, but will begin to phase out due to adjusted gross income (MAGI), $150,000, and couples earning single filers over $300,000. Reduce the deduction by $100 for each $1,000 income above these thresholds.
Magi starts with adjusted gross income, while WHCH is essentially the sum of all income, generally including items such as dividends, interest, capital gains, rental income, self-employed income, taxable alimony, social security, pension income, and more. The AGI is then further adjusted or “changed” to reach the Magi.
For a single filer, if your income is $250,000 at the MAGI threshold, the deduction will be phased out completely.
The house version had no caps or phased outs. Instead, they ruled out highly compensated employees who earned at least $160,000 in 2025.
“The house version is more beneficial to the average taxpayer because there is no tax on tips and no tax on overtime, so there is no cap on deductions,” said Richard Pont, a certified public accountant in San Francisco.
Senior Deduction
The Senate proposed a $6,000 “bonus deduction” for people over the age of 65, but the eligibility would be $75,000 for a single filer and $150,000 for couples.
The deduction is available from 2025 to 2028, supplementing but not replacing the existing additional standard deductions already available to seniors. In 2025, one filer over the age of 65 can claim an additional $2,000, but married couples can file jointly to add $1,600 for each spouse over the age of 65, in addition to the standard deduction available to all taxpayers.
Senate bonus deductions are above them.
The House has agreed to a $4,000 bonus deduction with similar eligibility parameters and duration.
The Budget Adjustment Process does not allow provisions related to Social Security, so the bonus deduction is intended as an alternative to tax commitments on Social Security, according to the bipartisan policy center.
Analysts said that people who pay little or no federal income tax will not benefit at all from the bonus deduction, as tax credits only directly reduce taxable income, rather than directly reduce taxable income.
Salt deduction
Individual taxpayers could lose big under the controversial version of salt Senate, or state and local tax credits.
In 2017, Trump’s first major tax bill limited salt to $10,000. Before that, it was without a cap. This means that individuals could deduct all state and local taxes on their federal tax returns. Cap was seen as almost hurting many large democracies like New York, many large democracies with state and local taxes.
As a workaround, many states have adopted pass-through entity (PTE) tax. This allows an entity to pay state income taxes at the entity level and receive tax credits. Only individuals, not entities, are eligible for salt caps.
The House Plan will raise the cap to $40,000 for individuals under $500,000.
The Senate holds its current $10,000 cap and said the Pass-Through Entity Tax (PTE) will be subject to the $10,000 limit, Pon said.
“I think the cap could be raised slightly. It’s likely that it will double the cap for married taxpayers to $20,000,” Pon said. But “I think the proposal to stop working around PTE will pass as we increase the revenue needed to manage the deficit.”
Medora Lee is a money, market and personal finance reporter for USA Today. mjlee@usatoday.com and Subscribe to our free daily money newsletter Personal finance tips and business news every Monday to Friday.
