How much could the Working Families Tax Cut Act of 2025 save you? Last month we introduced the legislation and Trump Accounts for Newborns. This month, we’re cutting through the complexity to show you the specific provisions that could lower your tax bill. Here’s a rundown on some of the key provisions.
Read more about Trump Accounts Explained: The New Retirement Savings Program for Children Born 2025-2028.
No Tax on Tips
What does it mean?
- For the four years from 2025 through 2028, both employees and people who are self-employed who work in certain occupations may deduct qualified tips from their gross tax income.
- The deduction is available to you even if you don’t itemize your deductions.
- The IRS defines “qualified tips” as “voluntary cash or charged tips received from customers or through tip sharing.”
- The maximum amount of the allowed deduction is $25,000 annually.
- If you are self-employed, the allowed deduction cannot exceed your net income in the qualifying trade or business.
Who is eligible?
To qualify for this deduction:
- Your income (modified adjusted gross) must be under $150,000 for individuals or $300,00 for those filing jointly.
- You must work in an occupation listed by the IRS as one in which employees “customarily and regularly receiv(e) tips on or before December 31, 2024.” Such tips must be “reported on a Form W-2, Form 1099, or other specified statement furnished to the individual or reported directly by the individual on Form 4137.”
- If you are self-employed in a Specified Service Trade or Business as listed by the IRS (under section 199A), you are not eligible.
- Employees who work in a Specified Service Trade or Business also are not eligible.
No Tax on Overtime
What does it mean?
Under the Act, workers may deduct up to $12,500 for qualified overtime compensation during the years 2025 through 2028.
What is qualified overtime compensation?
- The IRS defines “qualified overtime compensation” as overtime compensation paid to an individual in excess of the regular rate at which the individual is employed.
- The regular rate includes “all remuneration for employment paid to, or on behalf of, the employee”, subject to eight exclusions.
- Overtime pay is generally hours worked in excess of 40 hours in one work week.
Who is eligible?
- Workers who receive qualified overtime compensation during the years 2025 through 2028. However, taxpayers with a modified adjusted gross income over $150,000 ($300,000 for joint filers) are not eligible.
- The deduction is available for both itemizing and non-itemizing taxpayers.
Increased Standard Deduction
What is it?
The standard deduction amounts have increased for the 2025 tax year to $15,750 (single), $23,625 (head of household), and $31,500 (married filing jointly).
Learn more about Tax Proposals Affecting Wealth Transfer.
Permanent, Lower Tax Brackets
What is it?
The Act will maintain the seven federal income tax brackets that were enacted in 2017 (under the 2017 Tax Cuts and Jobs Act). These tax brackets have been made permanent. The Act attempts to reduce the tax burden on low-income taxpayers. The personal income tax brackets will permanently remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Child Tax Credit Expansion
What is it?
The Act increases the maximum Child Tax Credit to $2,200 per qualifying child. This increase is permanent and will adjust with inflation.
Who is a qualifying child?
To qualify for this tax credit, a child must:
- Be under age 17.
- Meet specific relationship and residency tests.
- Not provide more than half of their own support.
- Be claimable as a dependent.
- Not file a join return (some exceptions apply).
- Must be a U.S. citizen, national, or resident alien with a valid Social Security Number.
Deduction for Seniors
What is it?
- For the four years 2025 through 2028, individuals who reach 65 years of age on or before the last day of the taxable year may claim an additional deduction of $6,000 per person.
- The deduction would increase to $12,000 per married couple so long as both persons qualify.
- This deduction is in addition to the current additional standard deduction for seniors.
- Taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers) are ineligible.
- The deduction is available to taxpayers who don’t itemize.
The Working Families Tax Cut Act of 2025 offers real opportunities to reduce your tax burden, but only if you take advantage of them. Review these provisions carefully, keep good records, and consult with your estate or tax professional to ensure you’re claiming every benefit to which you’re entitled.
*The Working Families Tax Cut Act of 2025 is also known as the One, Big, Beautiful Bill Act or OBBBA.
Need help with estate and trust planning? Contact an experienced attorney today at Sussan Greenwald & Wesler
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