During his campaign, President Trump proposed no tax on overtime and tips — mostly affecting people who work in the service or hospitality industry.

As of now, Trump is still pushing his tax proposal. 

On Tuesday, House Republicans narrowly passed their budget resolution, which is intended to guide Congress for the year. This resolution does not change funding for federal programs or alter tax laws.

The budget resolution vote was 217-215. 

Here is what you should know about the no tax on overtime proposal.

What is no tax on overtime?

The no tax on overtime proposal aims to exempt overtime pay from federal income tax. This would mean that workers who log extra hours would not have to pay federal taxes on their overtime earnings, potentially allowing them to take home more of their total pay. 

As per NDTV, here’s what the proposal aims for:

• Overtime pay: Allowing overtime pay to be exempt from income tax would let workers keep a larger portion of their earnings, potentially increasing their take-home pay and stimulating economic growth.
• Tips: Removing taxes on tips would provide considerable advantages to service industry workers like restaurant staff, delivery drivers, and gig workers, who depend heavily on gratuities for a large portion of their income.
• Social Security benefits: Eliminating taxes on Social Security benefits would give retirees more disposable income, potentially improving their quality of life and boosting local economic activity.

TaxFoundation.org explained the cons of the proposal for employers.

“Introducing an exemption for overtime work would increase time spent on overtime decisions for employees and worker classification arrangements between employees and employers purely for tax purposes, distracting them from productive activity,” they said.

“In short, exempting overtime would unnecessarily complicate the tax code, increase compliance and administrative costs, and reduce neutrality by favoring certain work arrangements over others.”

When does no tax on overtime start in Texas?

The proposal to eliminate taxes on overtime will become effective once the House Budget 2025 bill is passed and signed into law. However, before being sent to Trump to be signed, the budget will still need to be reconciled with a separate budget proposed by the Senate and agreed by both chambers.

If the bill is approved, workers who put in extra hours will have their overtime pay exempt from federal income tax.

Are tips supposed to be taxed?

According to the Internal Revenue Service, any tips of $20 or more that an employee receives in a month from one job are considered wages and are subject to withholding.

Cash tips received by an employee during any calendar month are also subject to Social Security and Medicare taxes and must be reported to the employer. However, if the total cash tips received from a single employer in a single calendar month are less than $20, they do not need to be reported, and no taxes need to be withheld.

Here is what the tax code considers taxable tips:

• Cash tips received directly from customers.
• Tips from customers who leave a tip through electronic settlement or payment. This includes a credit card, debit card, gift card or any other electronic payment method.
• The value of any noncash tips, such as tickets or other items of value.
• Tip amounts received from other employees paid out through tip pools, tip splitting, or other formal/informal tip sharing arrangement.

This story was updated to add a photo gallery.