The Federal Government’s New Budget Bill and Its Effect on Tips, Social Security, and Income Taxes

The recently enacted One Big Beautiful Bill Act (OBBB) makes a lot of overhauls to federal law, including the tax code. While the vast majority of tax savings are going to the ultra-wealthy, lower-income individuals could still see some benefits. It is important to know what these changes mean, and how a tax resolution lawyer or tax controversy lawyer can assist if you encounter issues with paying the IRS or agreeing with their findings.

So, how does the federal government’s new budget bill affect tips, Social Security, and income taxes? With this quick read, the attorneys at our law firm can provide an overview of some of these notable changes.

How Does OBBB Affect Tips?

Waitstaff and workers in a variety of service industries count on tips to earn a livable wage. These employees have traditionally been required to report this income to their employers, as well as the government through IRS Form 4137.

Now, individuals are now able to deduct up to $25,000 of their tip income on their federal tax return for the next four years. You are permitted to take advantage of this clause, regardless of whether you itemize or take the standard deduction. However, your employer must report the income separately on a W-2 or 1099 in order to claim the deduction.

What is the Social Security Fairness Act?

Another measure introduced through the new budget bill is a reduction of levies on Social Security benefits. Seniors aged 65 and over are now able to take a higher standard deduction than in previous years.

With an additional “bonus” deduction of $6,000 for single filers and $12,000 for married couples filing jointly, it effectively reduces or even eliminates the amount of Social Security income subject to taxation. This provision is retroactive to January 2024.

How Does the OBBB Affect Income Taxes for Individuals?

Several provisions of the budget bill directly affects federal taxes for individuals. Starting for returns filed for year ending 2025, rates and brackets that were established in 2017 are now permanent.

The Alternative Minimum Tax exemption amounts, as well as the standard deduction, were permanently increased, although that could mean less in itemized deductions. Employees with qualified overtime could also take advantage of a new deduction aimed at reducing their tax liability.

Does the OBBB Affect Income Taxes for Businesses?

Companies could also benefit from new tax breaks by reviving some important provisions. Key areas that business owners should know about include 100% bonus depreciation for property purchased and used this year. The new budget bill also increased the amount of qualifying property a taxpayer can expense to $2,500,000. No longer are companies required to capitalize and amortize domestic R&D or R&E expenses, among many other changes.

Consult with an Attorney if the New Budget Bill Causes an Issue that Requires Tax Resolution Services

The federal government’s new budget bill will have sweeping effects on many areas of the law, including income tax, Social Security, ERC tax credits, Medicaid eligibility, and others. It may be hard to understand every part of it, or how it will affect your life. If the changes lead to an issue with the IRS, including your ability to pay what you owe, or a dispute that needs to be resolved as soon as possible, we are here to advise you of your options and ensure you get to a better place with your tax compliance. Reach out to us and learn more.