Trump Tax Exemptions: Tips, Overtime, SALT, Trump Accounts

The Trump tax exemptions enacted in the One Big Beautiful Bill Act, signed into law on July 4, 2025, create new federal deductions for tipped workers, overtime pay, and seniors, raise the cap on state and local tax deductions, and make the lower individual tax rates from 2017 permanent. The new deductions for tips, overtime, and seniors are temporary, covering tax years 2025 through 2028. The senior deduction, combined with the existing standard deduction, effectively zeroes out federal income tax on Social Security benefits for roughly 88% of recipients.¹ Here is what each exemption does, who qualifies, and where the limits fall.

Deduction for Tipped Workers

Workers who receive tips can deduct up to $25,000 in tip income per year from their federal taxable income. The deduction is available to employees and self-employed individuals in occupations the IRS classifies as “customarily and regularly” receiving tips as of December 31, 2024.² The IRS was required to publish the official list of qualifying occupations by October 2, 2025. Workers in “Specified Service Trades or Businesses,” a category that covers fields like law, medicine, and consulting, are excluded.

You do not have to itemize to claim it. Cash tips, charged tips, and tips received through tip-sharing arrangements all count, provided they are reported on IRS forms. The deduction phases out for single filers with modified adjusted gross income above $150,000 and joint filers above $300,000, dropping by 10 cents for every dollar over those thresholds.³

One important boundary: tips remain subject to payroll taxes for Social Security and Medicare. The deduction only removes them from federal income tax, not from FICA. The provision runs through tax year 2028, and the Congressional Budget Office estimated the cost at $40 billion over a decade.⁴

Deduction for Overtime Pay

Hourly workers can deduct the overtime premium portion of their pay — the “and-a-half” part of time-and-a-half — from federal taxable income. Only non-exempt hourly employees covered by the Fair Labor Standards Act qualify. Overtime that is state-mandated, union-negotiated, or voluntarily offered by an employer above what the FLSA requires does not count.⁵

The annual cap is $12,500 for individual filers and $25,000 for married couples filing jointly. The income phase-outs mirror the tips deduction: $150,000 for single filers and $300,000 for joint filers.² The deduction is retroactive to the start of 2025, so overtime already worked that year can be claimed.⁶ Overtime pay remains subject to payroll taxes. The provision runs through 2028, and the CBO estimated a ten-year cost of $124 billion.⁴

Senior Deduction and Social Security Benefits

The law does not directly repeal the tax on Social Security benefits. Instead, it creates a new $6,000 deduction for taxpayers aged 65 and older, or $12,000 for married couples where both spouses qualify. It stacks on top of the regular standard deduction and the preexisting additional standard deduction for seniors, and it is available whether or not you itemize.⁷

The deduction phases out at six cents per dollar above $75,000 in income for single filers, disappearing entirely at $175,000. For joint filers, it phases out above $150,000 and disappears at $250,000.⁸ For a single senior receiving the average Social Security retirement benefit of about $24,000, the stacked deductions now exceed the taxable portion of that benefit, which is what lets the White House say 88% of recipients will owe no federal income tax on their Social Security payments.¹ The Social Security Administration called it “meaningful and immediate relief.”⁹

The senior deduction also sunsets after tax year 2028. The Joint Committee on Taxation estimated its ten-year cost at $93 billion. Because many of the lowest-income seniors already owed no federal income tax, the deduction provides the most benefit to middle-income retirees rather than those at the bottom of the income scale.⁷

Higher SALT Deduction Cap

The $10,000 cap on the state and local tax deduction, one of the most contentious pieces of the 2017 law, is temporarily raised to $40,000 for tax years 2025 through 2029. The cap increases by 1% annually during that window. For taxpayers with income above $500,000, the $40,000 cap phases down at a 30% rate until it hits the old $10,000 floor.¹⁰

In 2030, the cap permanently reverts to $10,000. The higher cap primarily benefits itemizers in high-tax states like California, Connecticut, Maryland, and New York, and the Bipartisan Policy Center noted the benefits continue to flow primarily to upper-income households.

What Became Permanent From the 2017 Tax Cuts

The 2017 Tax Cuts and Jobs Act had set its individual provisions to expire after December 31, 2025. The One Big Beautiful Bill makes most of them permanent.

The seven individual tax brackets stay in place, with a top marginal rate of 37%.¹¹
The expanded standard deduction is now $15,750 for single filers and $31,500 for joint filers in 2025, indexed annually for inflation. The law added a further $750 (single) and $1,500 (joint) on top of the TCJA-era levels.¹¹
The child tax credit rises from $2,000 to $2,200 per child and is indexed to inflation. The refundable portion is capped at $1,700, and the existing earnings-based phase-in rules are unchanged.¹²
The estate and gift tax exemption is permanently set at $15 million per person starting in 2026, indexed for inflation, or effectively $30 million per couple.¹¹
The 20% pass-through business deduction under Section 199A is made permanent.¹¹

Full bonus depreciation, letting businesses deduct 100% of qualifying equipment costs in the year of purchase, was also restored and made permanent, along with the immediate deduction of domestic research and development costs.¹³

Trump Accounts for Children

The law creates a federally backed savings account for children, officially called the “Trump Account.” The U.S. Treasury deposits a one-time $1,000 contribution for each eligible child born between January 1, 2025, and December 31, 2028. Parents claim the account by filing IRS Form 4547. Family members and others can contribute up to $5,000 per year, and employers can add up to $2,500 annually, tax-free to the employee, counted toward the $5,000 cap.¹⁴

During the growth period before the child turns 18, funds must be invested in low-fee mutual funds or ETFs that track a broad U.S. stock index such as the S&P 500. Management fees are capped at 0.1% annually, and leveraged or sector-specific investments are prohibited. Withdrawals are barred until age 18, with a single exception for a rollover into an ABLE account in the year the child turns 17.¹⁴

After 18, the account converts to what is essentially a traditional IRA. Withdrawals of post-tax contributions come out tax-free, while employer contributions, government contributions, and investment earnings are taxed as ordinary income. A 10% early withdrawal penalty applies before age 59½, with exceptions for higher education, a first home purchase (up to $10,000), birth or adoption costs, and certain emergency or medical expenses.¹⁴ The White House Council of Economic Advisers estimated that with maximum annual contributions and average stock market returns, an account opened at birth could grow to roughly $303,800 by age 18.¹⁵ Accounts officially opened for contributions on July 4, 2026, and by late January 2026, roughly 500,000 families had already elected to participate.¹⁶

Who the Exemptions Actually Reach

The distributional picture is mixed. A Yale Budget Lab analysis of the 2026 tax year found that about one-third of households see no additional benefit beyond the extension of the 2017 rates, nearly half receive a tax cut of less than $100, and two-thirds receive less than $500. The biggest gains concentrate in the upper-middle income range of roughly $75,000 to $130,000, where more than half of taxpayers see at least a $500 cut, driven largely by the higher SALT cap and the new deductions for tips, overtime, and seniors.¹⁷

The Center on Budget and Policy Priorities offered a harsher assessment, noting that families earning less than $50,000 receive roughly $250 in annual tax cuts while those earning over $1 million receive more than $100,000. The center also said the $200 increase in the child tax credit does nothing for the estimated 17 million children whose parents earn too little to claim the full credit, because the refundability restrictions were left unchanged.¹⁸

One planning point worth flagging: the tips, overtime, and senior deductions all expire after tax year 2028 unless Congress extends them. If you are counting on any of the three, treat them as a four-year window rather than a permanent feature of the code.

1
The White House. No Tax on Social Security Is a Reality in the One Big Beautiful Bill
2
IRS. One Big Beautiful Bill Act Tax Deductions for Working Americans and Seniors
3
Bipartisan Policy Center. How Does No Tax on Tips Work in the One Big Beautiful Bill
4
Committee for a Responsible Federal Budget. Breaking Down the One Big Beautiful Bill
5
MRSC. No Tax on Overtime
6
The White House. The One Big Beautiful Bill
7
Bipartisan Policy Center. The 2025 Tax Bill Additional $6,000 Deduction for Seniors Simplified
8
AARP. What to Know About the New Tax Law
9
Social Security Administration. SSA Press Release
10
Bipartisan Policy Center. SALT Deduction Changes in the One Big Beautiful Bill Act
11
Tax Foundation. One Big Beautiful Bill Act Tax Changes
12
ITEP. Child Tax Credit 2026 OBBBA Trump Taxes
13
IRS. One Big Beautiful Bill Provisions
14
Congressional Research Service. Trump Accounts Fact Sheet
15
The White House. Trump Accounts Give the Next Generation a Jump Start on Saving
16
U.S. Department of the Treasury. Trump Accounts Press Release
17
Yale Budget Lab. Distribution of Tax Cuts in the New Tax Law
18
Center on Budget and Policy Priorities. By the Numbers Harmful Republican Megabill