Americans To Get 'Income Tax Relief' in Tax Bill: What To Know

Donald Trump has pledged income tax relief for millions of Americans. But what exactly has the president promised?

Why It Matters

Earlier this month, Republicans approved a budget resolution that includes trillions of dollars in cuts to both taxes and government spending. Treasury Secretary Scott Bessent said on Tuesday that the forthcoming bill would also eliminate taxes on tips, overtime pay and Social Security benefits.

Speaking at a Tuesday rally in Michigan to mark his first 100 days in office, Trump also renewed his commitment to these measures, all of which were key election campaign promises.

"In the coming weeks and months, we will pass the largest tax cuts in American history, and that will include no tax on tips, no tax on Social Security, no tax on overtime," Trump told a crowd in Warren, just outside of Detroit, on Tuesday.

No Tax On Tips

Throughout his 2024 campaign, Trump pledged to end tipped income being subject to federal income taxes. The pledge was popular, also being taken on by his opponent Kamala Harris.

All cash and non-cash tips received by an employee are considered income and are therefore currently subject to federal income tax, as well as Social Security and Medicare taxes.

Outside of the Republican budget bill, other lawmakers have taken action. A bipartisan group of lawmakers, led by Texas Representative Ted Cruz, introduced the No Tax on Tips Act in January. The bill exempts "cash tips"—cash, credit and debit card charges, and checks—from federal income tax by allowing taxpayers to claim a 100 percent deduction at filing for tipped wages.

End of Social Security Income Taxes

Trump first pledged to end all taxes levied on Social Security benefits in July, writing on his social media platform Truth Social: "SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!"

As it currently stands, those who claim Social Security retirement benefits whose total income is above certain thresholds have to pay taxes on part or all of their benefits. Single filers earning $25,000 to $34,000 may pay taxes on 50 percent of benefits; those earning more may be taxed on up to 85 percent. For joint filers, the thresholds are $32,000 to $44,000 for 50 percent taxation, and above $44,000 for up to 85 percent.

No Tax on Overtime

In September 2024, during his presidential campaign, Trump pledged to eliminate federal income taxes on overtime pay for workers exceeding 40 hours per week.

As it stands, The Fair Labor Standards Act (FLSA) mandates that eligible workers get at least 1.5 times their standard pay rate for hours worked beyond the typical 40-hour workweek. However, this is currently taxed at regular federal income tax rates, like regular income, and is also subject to Social Security and Medicare taxes.

How Will Tax Cuts Be Paid For?

Bessent said the lost revenue from the tax cuts will be replaced by income from Trump's tariff agenda.

"We're going to take in long-term tariff revenue. We put a process in place," Bessent said from the White House on Tuesday. "What President Trump is referring to is the ability for tariff revenue to give income tax relief, and I think there's a very good chance we will see this in the upcoming tax bill."

"The president campaigned on no tax on tips, no tax on Social Security, no tax on overtime," he said, explaining that "tariff income could be used for tax relief on all those immediately."

Trump and the Economy

His renewed pledges come at a time when the American public's faith in Trump's ability to steward the economy is dropping. In a Reuters/Ipsos poll conducted last week, just 36 percent of respondents approved of Trump's economic stewardship—the lowest level across both of his presidential terms. A CNN poll released Sunday showed that just 39 percent of Americans currently approve of Trump's handling of the economy.

The Ipsos/Reuters poll also found that 42 percent of Americans said they approved of Trump's overall performance as president so far, while 53 percent disapproved, down from 47 percent approval in the same poll in January.