Sponsor
Donald J. Bacon
Representative · R-NE
Representative · R-NE
The bill provides targeted tax relief and clearer withholding for workers receiving bonuses (including non-itemizers), at the cost of reduced federal revenue, added payroll complexity for phased-in eligibility, and temporary policy uncertainty through a 2029 sunset.
Employees who receive bonuses — including those who do not itemize and especially middle-income workers — can reduce taxable income by up to 15% of their bonus, lowering their federal income tax liability.
Employers and payroll administrators will have clearer withholding rules once Treasury updates withholding tables, reducing year-end surprises for workers and lowering administrative uncertainty for businesses.
All taxpayers (via the federal budget) face higher costs because the deduction reduces federal revenue, which could increase deficits or require cuts or offsets to other programs.
High-earning employees receive no benefit once the deduction phases out, while employers must administer partial eligibility — adding payroll complexity and uneven treatment across income groups.
Employees and employers face planning uncertainty because the deduction is temporary and sunsets at the end of 2029, complicating long-term compensation and withholding decisions.
Based on analysis of 2 sections of legislative text.
Creates a temporary individual deduction allowing up to 15% of employer bonuses to be deducted (subject to caps and AGI phaseouts) through 2029.
Official title: To amend the Internal Revenue Code of 1986 to establish a deduction for certain amounts received as a bonus.
Introduced January 20, 2025 by Donald J. Bacon · Last progress January 20, 2025
Creates a temporary individual income tax deduction for a portion of employer bonuses: taxpayers may deduct up to 15% of bonuses received (subject to a cap tied to the employer’s non-bonus wages and income phaseouts). The deduction is available to both itemizers and non-itemizers, requires Treasury to update withholding procedures, and sunsets for amounts received after December 31, 2029.