How the Big Beautiful Bill Could Save You $5,500 This Year (Without Working Harder)
Grab your coffee and pull up a chair, because the IRS just dropped a rare gem in our laps, and if you earn tips or overtime, you’re going to want to pay attention. The One Big Beautiful Bill Act (OBBBA) is a brand-new piece of tax legislation that could significantly reduce your taxable income starting in the 2025 tax year. It’s especially juicy for those earning six figures with a side of tips or overtime (OT). Wondering how the Big Beautiful Bill could save you on taxes? Here’s the walk-through summary through the lens of someone earning $100,000 a year, including $25,000 in either tips or overtime pay (which is common for my clients).
The Headline Perks: Tips & Overtime Just Got More Rewarding
Tips:
- Deduct up to $25,000 of cash tips annually (yep, above the line)
- Fully available if your Modified Adjusted Gross Income (MAGI) is under $150,000 (single)
- Translation: Your $25k in tips could effectively disappear from your taxable income, dropping your Adjusted Gross Income (AGI) to $75k.
Overtime:
- Deduct up to $12,500 of OT premium pay (just the “extra” half-time/double-time portion)
- Same $150k MAGI income phase-out applies
- If you earned $25k in overtime, only the premium half counts—but still drops AGI to $87.5k
Either way, you’re pretending a chunk of your income never existed. And this happens before the standard deduction even kicks in.
How Much Could You Save?
Let’s talk numbers, because that’s where things get fun.
| Scenario | Taxable Income | Estimated Federal Tax | Your Savings |
|---|---|---|---|
| No deductions (baseline) | $100,000 – $14,600 = $85,400 | ≈ $14,100 | — |
| Deduct $25k in tips | $75,000 – $14,600 = $60,400 | ≈ $8,600 | ≈ $5,500 |
| Deduct $12.5k in OT | $87,500 – $14,600 = $72,900 | ≈ $11,350 | ≈ $2,750 |
That’s real money back in your pocket. Or your IRA. Or your next vacation fund.
Bonus Sweeteners in the Big Beautiful Bill
Because Congress occasionally likes to sprinkle a little sugar on top:
- Extra $6,000 standard deduction for seniors aged 65+ (my parents are loving this!)
- State and Local Tax (SALT) cap raised to $40,000 (great if you itemize in a high-tax state, like New York or California)
- Child Tax Credit (CTC) permanently increased to $2,200 per child (yay, parents!)
- Up to $10,000 in auto loan interest
- Tax Cuts and Jobs Act (TCJA) tax brackets stay put, and this one deserves a deeper look
Let’s Talk About That TCJA “Stay-Put” Clause
The Tax Cuts and Jobs Act (TCJA) of 2017 lowered federal income tax rates across the board — but only temporarily. Without action from Congress, those lower rates were set to expire in 2026, bouncing back to pre-2017 levels.
So, what does that mean for you if you’re earning $100,000?
Here’s a simplified comparison of how your federal tax bill might have looked with and without the TCJA extension:
| Scenario | Top Marginal Tax Rate | Estimated Federal Tax |
|---|---|---|
| Current (2025) – TCJA stays | 22% | ≈ $14,100 |
| Without TCJA – Old rates return | 25% | ≈ $16,200 |
That’s a potential increase of $2,100 in federal taxes if the TCJA had been allowed to expire. The Big Beautiful Bill locks in those lower rates so you’re not hit with a surprise hike in 2026. (Whew!)
Fine Print You’ll Want to Know
- Perks phase out at $150,000 MAGI (single) or $300,000 MAGI (married filing jointly)
- “Cash tips” = includes credit card and pooled tips, but not gift cards, concert tickets, or digital tips through third-party apps
- For overtime: only the premium portion (the extra 50–100%, not the full time-and-a-half) is deductible
- Payroll taxes (Social Security & Medicare) still apply — this is only a federal income tax break
- State income tax rules vary — not all states will conform
So What Should You Actually Do?
Please make sure to track every tip. That $20 cash left on the table just got way more valuable. Break out your OT pay. Keep records separating base hourly pay from premium overtime pay. It’ll save you and your CPA a headache come tax time. Skating close to $150k MAGI limit? Consider contributing more to a pre-tax retirement account, such as your 401(k) or an IRA, to stay eligible.
Here’s the Bottom Line
If you’re earning $100,000 and qualify for these deductions…
You could save $5,500 on your federal taxes with the tip deduction
Or $2,700 with the overtime deduction
And avoid a $2,100+ tax hike thanks to the TCJA extension.
That’s a range of $4,800 to $7,600 that the Big Beautiful Bill could save you this year, simply tracking your income and planning smart!
And if you’d like to map out a personalized strategy for making the most of these savings without overwhelm, I’m just a mug of coffee away.