About the exemption: Once the provision goes into effect, workers will be able to deduct $25,000 in tips annually from their taxable income. After that, tips will be federally taxed. If a worker makes more than $150,000 a year, though, their tipped income will start to be taxed.

The overtime tax break will function similarly to the tip income deduction. Overtime wages will still be subject to withholding, but workers could deduct federal income taxes paid on those wages when filing their returns, even if they don't itemize. The deduction will apply to tax years 2025 through 2028.

This bill establishes a new tax deduction of up to $25,000 for tips, subject to limitations. The bill also expands the business tax credit for the portion of payroll taxes an employer pays on certain tips to include payroll taxes paid on tips received in connection with certain beauty services.