Donald Trump recently signed a bill that makes
On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act into law, marking one of the most sweeping revisions to the federal tax code in decades. The legislation, its ambitious title signaling optimism and promise, immediately sparked intense debate across political lines, economists’ circles, and everyday Americans’ dinner tables. Supporters hailed it as a long-overdue correction that provides tangible relief for workers and families, while critics warned of escalating federal deficits and potential unintended consequences that could reverberate through the economy for decades
At its core, the legislation extends several tax cuts that were previously scheduled to expire in 2025, making them permanent. For both individuals and businesses, this represents a continuation of lower tax rates that cumulatively add trillions of dollars to disposable income. Beyond the extension of existing reductions, the bill introduces new provisions aimed at specific groups of workers. Among the most notable are tax-free overtime pay and expanded deductions targeted at seniors living on fixed incomes. Yet the aspect that generated the most immediate attention and discussion was the exemption of tips from federal income taxes, a change that directly impacts millions of service workers in industries ranging from restaurants to hospitality, delivery, and personal services.
Understanding the Tip Exemption: Who Benefits and How
The exemption of tips from federal income tax is a major shift in federal policy. Historically, tips have always been considered taxable income, and workers were required to report all gratuities, which were then subject to federal taxes. This approach, while consistent with standard income reporting, often placed a disproportionate burden on workers whose wages are heavily dependent on tips. Restaurant servers, bartenders, hotel staff, and other tipped employees frequently earn base wages that are below standard minimums, relying on tips to reach or surpass living wage thresholds. By exempting tips from federal taxation, the legislation effectively increases the take-home pay of these workers without requiring changes to employer payroll systems.
