Sponsors (2)
The bill reduces taxes for many wage earners (tipped and overtime workers) and simplifies tax characterization for partnership services while shifting revenue and administrative costs to the federal budget and placing new tax, compliance, and cash‑flow burdens on partners and businesses.
Seniors and Railroad beneficiaries will keep more of their benefits because Social Security and Railroad Retirement benefits are excluded from taxable income for tax years after 2025, and Treasury is directed to reimburse trust funds to preserve balances.
Tipped service workers who report cash tips can deduct reported cash tips above-the-line, lowering taxable income and reducing tax liability and over-withholding once withholding tables are updated.
Workers who earn overtime can deduct qualified overtime pay above-the-line, giving middle‑income and non‑itemizing workers tax relief without needing to itemize.
Taxpayers and the federal budget will ultimately bear higher federal outlays or revenue losses because new deductions (tips, overtime) and Treasury reimbursements to trust funds increase Federal spending or reduce receipts, potentially widening deficits or requiring offsets.
Partners (investment managers) who hold investment-services partnership interests will likely pay higher taxes because gains and dispositions lose capital‑gain treatment and are recharacterized as ordinary/self‑employment income, raising tax bills and payroll-tax exposure.
Recipients of service‑for‑partnership‑interest transfers may face immediate taxable income based on hypothetical liquidation value (without receiving cash), forcing some partners to sell assets or borrow to pay tax and increasing their cash‑flow stress.
Based on analysis of 7 sections of legislative text.
Adds above-the-line deductions for reported tips and overtime, ends taxation of Social Security benefits, and changes partnership and investment-manager tax rules to treat some gains as ordinary income.
Official title: To amend the Internal Revenue Code of 1986 to establish deductions for cash tips, repeal the inclusion of social security benefits in gross income, and for other purposes.
Introduced April 3, 2025 by Stephen Cohen · Last progress April 3, 2025
Creates new above-the-line deductions for reported cash tips and for qualified overtime pay (subject to MAGI phaseouts), ends taxation of Social Security benefits and directs Treasury to reimburse affected trust funds, and imposes new, stricter tax rules for partnership interests and investment-management partnership income that recharacterize certain capital items as ordinary income and treat some amounts as self-employment earnings. Effective dates: most individual deductions take effect for taxable years beginning after Dec 31, 2025; partnership and investment-service rules apply to partnership taxable years ending after enactment with transitional rules.