Former President Donald Trump has signed a wide-ranging tax bill into law that alters several areas of the federal tax system and introduces a notable change for service workers. Under the new law, tips are exempt from federal income tax, a move supporters describe as direct relief for workers. Critics, however, have raised concerns that the measure could significantly increase the federal deficit over time.
The legislation permanently extends existing tax reductions and adds new elements, including tax-free overtime pay and expanded deductions for older adults. The most prominent provision removes federal income tax on tips, impacting workers in service-related fields such as restaurants, hospitality, and delivery services. While tips must still be reported as income, they are no longer subject to federal income tax. Automatic service fees and earnings from professional trades are not included in the exemption.
Supporters of the law say it helps workers whose income can vary week to week and who often lack strong benefit protections. Lawmakers backing the measure have stated that it allows workers to keep more of their earnings without requiring employers to raise base wages. Some advocates also suggest the change could help small businesses remain competitive while improving employee take-home pay.
Opponents argue the exemption may create unequal treatment among workers and could encourage employers to restructure compensation models. They also warn that making tax cuts permanent may place added strain on long-term government finances. As the policy takes effect, many service workers are already experiencing higher net pay, while analysts continue to evaluate the broader economic impact and potential budget implications.