Donald Trump Approves Law Making Tips Exempt from Taxes

January 10, 2026 by Nadia

At the heart of the law is a permanent extension of several key tax cuts originally enacted in prior legislation. These cuts reduce marginal rates for individual taxpayers, effectively allowing Americans to retain a larger portion of their earnings each year.

Additionally, the bill introduces new provisions aimed at improving the financial situation of specific groups. Among the most notable changes is the permanent exemption of tips from federal income tax.

This provision directly affects millions of service industry workers, including restaurant staff, bartenders, hotel employees, ride-share drivers, and delivery personnel. While tips must still be reported for recordkeeping purposes, they are no longer subject to federal income taxation, providing workers with immediate increases in take-home pay.

In addition to tip exemptions, the bill includes a range of targeted measures designed to assist seniors, workers who regularly log overtime, and small business employees.

Tax-free overtime pay is now codified into federal law, ensuring that employees who work extra hours do not face additional tax burdens on that income.

Expanded deductions for seniors are also included, allowing retirees to claim greater tax relief on medical expenses, property taxes, and certain qualifying charitable contributions

By combining these provisions, the bill aims to offer a multi-layered approach to tax relief, targeting both immediate financial needs and broader structural support.