Sponsors
The bill gives targeted tax relief and clearer withholding for bonus pay (helping many middle‑income and non‑itemizing workers) but increases federal costs, leaves higher earners excluded, and creates time-limited uncertainty for employers and employees.
Employees who receive cash bonuses — including many middle-income workers and those who don't itemize — can exclude up to 15% of a bonus from taxable income, lowering their federal tax bills.
Employers, payroll providers, and workers will get clearer withholding guidance once Treasury updates withholding tables, reducing year-end surprises and making payroll withholding more predictable.
The exclusion will cost the federal government revenue, increasing fiscal pressure that could raise deficits or crowd out other programs unless offsets are identified.
The provision sunsets at the end of 2029, creating uncertainty for employees and employers about long-term tax treatment of bonuses and complicating compensation planning.
Higher earners are phased out of the benefit, so many high-income employees get no tax relief while employers must administer partial eligibility, adding compliance and payroll complexity.
Based on analysis of 2 sections of legislative text.
Creates a temporary deduction allowing individuals to deduct up to 15% of employer bonuses (with an employer-wage cap and AGI phaseouts), effective after enactment and expiring after 2029.
Introduced January 20, 2025 by Donald J. Bacon · Last progress January 20, 2025
Creates a temporary individual tax deduction that lets workers deduct up to 15% of bonuses they receive from an employer, subject to a cap tied to that employer’s non-bonus wages and adjusted gross income phaseouts. The deduction is available to both itemizers and non-itemizers, requires Treasury to update withholding rules, and expires for amounts received after December 31, 2029. The deduction phaseouts begin at $100,000 AGI for single filers, $150,000 for heads of household, and $200,000 for joint filers. The change takes effect for amounts received after enactment and includes technical adjustments to prevent interaction with certain existing itemized deduction limits.