Takeaways

• The House and Senate bills differ in key ways, including that while the House bill would provide a deduction on tips and overtime earnings, the Senate bill provides a deduction for tips only.
• It remains to be seen which measures will pass in Congress. President Trump is expected to sign a bill that provides some sort of tax relief on tips or overtime pay.
• Employers could consider restructuring compensation policies.

Article

Tax breaks on overtime pay and tipped earnings passed the House on May 22, 2025, as part of the “One Big Beautiful Bill Act” (H.R. 1). The tax deductions provided under the sprawling reconciliation bill would be temporary, however, making these earnings deductible only for tax years 2025 through 2028.

H.R. 1 is part of the broader reconciliation package being hammered out in Congress. The legislation still needs to be approved by the Senate, which recently passed its own standalone bill providing a permanent tax deduction on tipped earnings. The Senate bill does not include tax relief on overtime pay (although several other Senate bills to provide a tax break on overtime are pending).

Both the House and Senate bills restrict the tax deduction to workers earning less than $160,000 per year. That is the current IRS threshold for defining “highly compensated employees” under IRC section 414(q)(1)). This is a different standard than the Department of Labor’s criteria for defining the “highly compensated employee” exemption under the Fair Labor...

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