President Trump is touting his “big, beautiful bill” tax cuts. Here’s how it works

As Americans prepare for the start of tax season next week, several new tax cuts are on the table as part of President Donald Trump’s “Big, Beautiful Bill.”

“We passed the biggest tax cuts in American history, including tax-free tips, tax-free overtime, and social security for our great seniors,” President Trump said Wednesday in a speech at the World Economic Forum in Davos, Switzerland.

The One Big Beautiful Bill, which President Trump signed into law last summer, is the sixth largest tax cut in the nation and is expected to reduce federal tax revenues by $5 trillion from 2025 to 2034, according to the Tax Foundation.

Experts predict the new law will result in larger tax refunds for many Americans this spring.

But experts say that despite the “no tax on” framework, the new measures generally do not completely eliminate tax obligations on tips, overtime and social security.

“Every time Americans hear ‘no taxes,’ they should understand that’s definitely not the case. There are always caveats,” said Sheneya Wilson, a certified public accountant and founder and CEO of Fora Financial in New York.

He said taxpayers first need to figure out some details, “starting with whether it’s a deduction or a deduction and whether you qualify based on your income level.” Deductions reduce your taxable income, and credits reduce your tax liability.

All three tax cuts mentioned by President Trump are temporary and will take effect from 2025 to 2028. State and local taxes may still apply.

Here’s how they work and what taxpayers should know about them before filing.

The new tax law allows certain workers to deduct up to $25,000 per year in “qualified tips” on their federal returns. The tip deduction is phased out once your modified adjusted gross income exceeds $150,000 for single filers and $300,000 for married couples filing jointly.

Not all tipped workers are eligible. Depending on your occupation, you may not be eligible for this deduction. Some low-income workers may not benefit from this tax reduction because they pay no federal income tax after taking the standard deduction in 2025.

The tax break also does not include tips received “under the table,” Wilson said. “Tips must be reported on a W-2 or 1099, and then you can take a deduction from that income.” If you have W-2 income (hourly wages and tips), your regular taxable wages are not reduced. Only the tip part is reduced. ”

OBBBA allows eligible workers to deduct “qualified overtime pay” from their federal returns. The maximum lump sum payment is $12,500 for single applicants and $25,000 for married couples filing jointly. This tax cut will be phased out for high-income earners.

This is a tax reduction only for overtime pay, not the entire wage. Payroll company ADP provides the following example in a blog post: If you are paid $10 per hour in non-overtime earnings and $15 per hour in overtime, only the $5 per hour premium for overtime is tax deductible.

When preparing your 2025 return, “make sure you have your last pay stub and that it shows how much of your pay was properly calculated as overtime,” Wilson says.

The tax break “applies to all income earned over time,” she said. “It’s usually listed on your final pay stub. A W2 doesn’t clearly show how much overtime you were paid.”

The 2025 tax law provides a “bonus” deduction of up to $6,000 for Americans age 65 and older, and up to $12,000 for married couples filing jointly, to reduce the amount of federal income subject to tax. This measure does not affect how Social Security is taxed, and you do not need to have applied for Social Security benefits to receive the deduction.

Whether you qualify for this tax reduction depends on your income. Taxpayers with modified adjusted gross income up to $75,000, or $150,000 if married filing jointly, can take the full deduction. For income above these thresholds, the deduction is phased out.

Even if you don’t make the most of the 2025 filing deadline, experts say you should take steps now to manage your income and take advantage of deductions in the future.

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