Sponsors (2)
The bill offers targeted tax relief and clearer partnership rules that raise take‑home pay for many workers and reduce reporting uncertainty for partnerships, but it reduces federal revenue and shifts costs onto employers, partnerships, and the Treasury—creating deficits, administrative burdens, and new tax liabilities for certain partners and financial service providers.
Seniors and other Social Security and Railroad Retirement beneficiaries will no longer have those benefits included in gross income for tax years beginning in 2026, reducing federal income tax liability and simplifying filing for many retirees.
Tipped workers and employees who earn overtime (including non-itemizers) will be able to deduct reported cash tips and qualified overtime pay and see updated withholding, increasing take-home pay and reducing year‑end tax adjustments for many low- and middle-income workers.
Partnerships, partners, and investors will get clearer rules on carried interest and partnership items—reducing legal uncertainty about tax treatment and how partnership items are reported.
All taxpayers face higher federal outlays because Treasury must appropriate amounts to replace transfers to Social Security and Railroad Retirement trust funds, which could increase the federal deficit or crowd out other spending priorities.
Allowing above-the-line deductions (tips, overtime) and other tax changes will reduce federal tax revenue, potentially increasing deficits unless offsets are identified.
Employers, small businesses, nonprofits, partnerships, and the IRS will face increased administrative, payroll, reporting, and compliance burdens (new W-2 reporting, withholding-table updates, recordkeeping and penalty rules), raising costs and audit risk.
Based on analysis of 7 sections of legislative text.
Adds deductions for reported cash tips and overtime, stops taxing Social Security benefits after 2025, and tightens partnership and investment-manager tax rules.
Introduced April 3, 2025 by Stephen Cohen · Last progress April 3, 2025
Creates two new tax deductions for workers — one for cash tips that are reported to employers and one for overtime pay above the regular rate — while phasing those deductions out for very high earners. It also stops treating Social Security benefits as taxable income for tax years beginning in 2026 and directs the Treasury to replace any lost transfers to Social Security and Railroad Retirement funds. The bill tightens tax and payroll treatment of partnership interests and investment-management partners by accelerating taxation of service-related partnership interests, recharacterizing certain partnership capital gains as ordinary income, and treating that income as self-employment earnings for payroll tax purposes. Many provisions take effect after enactment and for taxable years beginning after December 31, 2025, and the bill adds new reporting and withholding requirements for employers and partnerships.