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Creates a new tax deduction that lets eligible individuals deduct up to 15% of employer-paid bonuses (capped at 15% of that person’s non-bonus wages from the same employer). The deduction is limited by adjusted gross income (AGI) phaseouts, is available to non-itemizers, requires Treasury to update withholding, and sunsets for amounts received after December 31, 2029. Only taxpayers with AGI below specified thresholds (up to $200,000 for married filing jointly, $150,000 for head of household, $100,000 for single/other) qualify. The change applies to bonus amounts received after the law takes effect; revenue and administrative impacts depend on Treasury and employer implementation.
The bill gives many bonus-earning and non-itemizing taxpayers near-term tax relief and higher take-home pay, but the benefit excludes higher earners, is temporary, and reduces federal revenue with potential future fiscal trade-offs.
Taxpayers who receive employer-tied bonuses can deduct up to 15% of those bonuses from taxable income, lowering their federal tax liability.
Taxpayers who do not itemize can claim the bonus deduction on their standard deduction return, expanding access to the tax benefit for many filers.
Once Treasury updates withholding tables, workers receiving bonuses may see lower withholding during the year, increasing take-home pay rather than waiting until filing.
Higher-earning workers with AGI above the specified thresholds are excluded from the deduction, so those taxpayers will not receive this benefit.
The deduction sunsets after 2029, making the tax relief temporary and creating uncertainty for long-term financial planning for affected taxpayers.
Allowing bonus deductions will reduce federal tax revenue, which could increase federal deficits or force future tax increases or spending cuts that would affect taxpayers.
Introduced January 20, 2025 by Donald J. Bacon · Last progress January 20, 2025