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Introduced January 20, 2025 by Donald J. Bacon · Last progress January 20, 2025
The bill gives many wage earners—especially middle‑class and non‑itemizing workers—temporary tax relief and smoother withholding for bonuses, while lowering federal revenue, creating unequal treatment for high earners, and imposing payroll compliance costs.
Middle-class workers and other wage earners can reduce their federal income tax by deducting up to 15% of eligible bonuses through 2029, lowering annual tax liability for many households.
Non‑itemizing taxpayers can claim the bonus deduction directly, expanding access to the benefit for workers who do not file itemized deductions and simplifying receipt of the tax break.
Updated withholding tables mean take‑home pay may better reflect the deduction during the year instead of only showing the benefit at filing, improving cash flow for employees.
The deduction reduces federal revenue through 2029, which could increase budget deficits or force spending cuts or tax offsets that affect public services and other taxpayers.
Higher‑income taxpayers are excluded, creating uneven tax treatment where large‑bonus recipients receive no benefit while lower‑ and middle‑income workers do.
Employers and payroll providers must update withholding tables and payroll procedures, imposing compliance costs and administrative burden, particularly for small businesses.
Based on analysis of 2 sections of legislative text.
Allows individuals to deduct up to 15% of an employer bonus (limited to 15% of that employer’s non-bonus wages), subject to AGI limits, and sunsets 12/31/2029.
Creates a new individual tax deduction for a portion of employer-paid bonuses. Taxpayers can deduct up to 15% of a taxable-year bonus from a given employer, but only to the extent that bonus does not exceed 15% of that employee’s non-bonus wages from the same employer; the deduction is phased out above specified AGI limits and sunsets after December 31, 2029. The law also requires Treasury to update withholding procedures and makes the deduction available to taxpayers who take the standard deduction.