A new federal tax law has introduced changes that affect millions of workers, particularly those in service-related industries. Among its provisions, the legislation removes federal income tax on tips, a shift that supporters describe as meaningful financial relief. At the same time, critics have raised concerns about how the measure could impact long-term government revenue.
The law also makes permanent several existing tax policies and adds new elements, including tax-free overtime pay and expanded deductions for older adults. The exemption applies specifically to tips earned by workers in 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. Certain forms of compensation, such as automatic service charges and earnings from professional trades, are not included in the exemption.
Supporters of the policy say it helps workers who often have fluctuating incomes and limited access to benefits. They argue that allowing employees to keep more of their earnings can improve financial stability without requiring employers to increase base wages. Some also suggest that small businesses may find it easier to support workers through higher take-home pay under this structure.
Opponents caution that the change may create uneven benefits across different types of workers and could influence how employers structure compensation. They also point to concerns about the combined cost of permanent tax reductions and new exemptions. As the law takes effect, economists and analysts are closely watching to assess its broader economic impact, including whether it supports sustained growth or contributes to future budget challenges.