No Tax on Overtime & Tips - I Hope I'm Wrong

[NowISeetheLight]

If I’m reading this correctly the ‘No tax on Overtime and Tips” provision of the Big Bastards Bill (BBB) is going to have a serious consequence for peoples retirements.

Currently Social Security and SS Disability is based on earnings. That means you pay SS tax on your gross earnings and the 35 top years earnings is then set to determine your retirement benefit. So as I see it if income is not taxed, it’s not counted. Am I thinking right?

So if you work a 40 hr a week job and are doing an average of ten hours a week of OT (which at time and a half is like 15 hours of base pay) over the course of a year you’d “not” earn over 700 hours of pay (as far as the government is concerned). Because you’re not taxed on that money your annual pay is lower and that in return lowers what you’ll get for Social Security.

Am I thinking of this correctly? Or do they still plan to collect SS on the overtime and declared tips? I honestly don’t know. Anyone have an answer?

[edhopper]

1. I think you are

Correct

[BOSSHOG]

2. And

I heard a talking head on TV stating that the no tax only applied to transactions made with plastic. Cash payments won’t count. Merely a happy note lie to dress things up. Like each kid gets a $1000.00 something or other at birth. Wow, there’s a reason to have a baby.

[MichMan]

3. What percentage of tips left in cash are declared as income?

[Rebl2]

4. That's

the way I see it. Flex spending accounts also lower the amount of social security you receive. Look it up.

[Silent Type]

5. The wages/tips still have to be reported and Social Security Taxes paid. The Bill allows a deduction from income

up to $25K I believe.

So, no, it does not hurt their retirement. Now a lot of other chit might.

[KPN]

6. Sounds right. Money under the table (i.e., not reported

for tax purposes) obviously isn’t figured into Social Security benefit computation. So unless there’s a provision for making SS contributions from tip and overtime income or another existing means to do this, you are probably right.

[FHRRK]

7. I don't think so

Your are falling for the Repuke/Trump marketing. There is no Federal Income Tax on tips and OT. (To the low limit) SS and medicare taxes along with state taxes will still be paid.

[cadoman]

8. "Or do they still plan to collect SS on the overtime and declared tips?"

No federal taxes but still FICA taxes.

[Lifeafter70]

9. I read that it is only for a two year period

In regards to tips it applies to cash tips with a 25k cap. You will still be taxed on credit card tips. Since most pay with credit cards, the majority of tips will still be taxed.

[Wiz Imp]

10. Not really. The amount of Tips and Overtime that are eligible to be excluded from taxes is very small.

Only $25,000 for Tips and only $12,500 for OT.

https://www.fidelity.com/learning-center/personal-finance/one-big-beautiful-bill

Temporary provisions good for 4 years
In addition to the permanent provisions, the legislation includes numerous temporary deductions and credits good only for tax years 2025 through 2028, including:

No taxes on tips or overtime.  The new law caps deductions on tipped income of up to $25,000 and overtime income of $12,500 ($25,000 for joint filers). The deduction would begin to phase out for single filers with income over $150,000 and $300,000 for joint filers.

And note, both provisions are only in effect for 4 years