On July 4, President Donald Trump signed Republicans’ “big, beautiful” tax and spending bill into law.
The sweeping legislation includes dozens of provisions, but two in particular could have a major impact on Nevada’s service-heavy economy: a federal income tax exemption for tips and another for overtime pay.
In Nevada, where service work is foundational and tip-based wages are common, the effects could be significant. The Tax Policy Center, a nonpartisan think tank, reported in 2024 that Nevada had the highest share of tipped workers in the country — over 5% of the workforce, nearly three times the national average.
What do these provisions do and what are their limitations?
Las Vegas-based certified public accountant Todd Cox said a key feature of both provisions is that they exempt tip and overtime income from federal income taxes, but not from payroll taxes like Social Security and Medicare.
“If you make $100, $7.65 of it is taxed for Social Security and Medicare, then there's an employer match. The employer has to come up with another $7.65,” Cox explained.
Cox compared the structure to a kind of automatic savings plan: “It’s kind of like a 401(k) that you don’t have to contribute to.”
For tipped workers, up to $25,000 in reported tip income can be excluded from federal income tax, as long as the worker meets certain income thresholds. Eligibility starts to phase out for individuals making more than $150,000 a year, or $300,000 a year for joint filers. The deduction is reduced by $100 for every $1,000 someone earns above their limit.
“If I’m a busboy in a coffee shop, that tip income represents a significant amount of my [total] income,” Cox said, “maybe a third of my wage, maybe 20% of my income. So if that $25,000 stays off your taxable income, that can save you real money.”
Still, the impact isn’t universal.
According to an analysis by the Yale Budget Lab in 2023, about 60% of households in the U.S. with tipped workers would receive a benefit from No Tax On Tips, amounting to about $1,800 per household per year. For some families that could be huge, others not so much.
That same analysis also determined that only 2.5% of U.S. workers are in tipped occupations.
Cox noted the IRS is still in the process of developing how no tax on overtime will be implemented. The tax break on overtime income is scheduled to take effect in 2026, with the tax break on tips set to take effect later this year. Both provisions expire in 2028.
So far, it appears individuals can deduct up to $12,500 in overtime pay per year, or $25,000 for joint filers. Only the extra pay earned from working overtime — not the base wage — would qualify. And workers must be eligible for overtime under the Fair Labor Standards Act, which generally applies to those earning time-and-a-half after 40 hours a week.
The state’s largest union — the Culinary Workers Union Local 226 — supports the No Tax on Tips provision. Secretary-Treasurer Ted Pappageorge said the effort has been decades in the making.
“We’ve been in the ring on taxes on tips for over 30 years,” Pappageorge said. “It’s not etched in stone.”
He credited the late Nevada Senator Harry Reid and Congressman Steven Horsford for fighting on behalf of tipped workers and supporting tax relief efforts.
But he also criticized the bill. “The tip relief is welcome, but the real problem is that it’s temporary,” Pappageorge said. “When you take a look at the super-rich tax windfall that happened out of this big, horrible bill — that’s permanent. But the few tax cuts that are in there for workers like this are temporary.”
Guests: Ted Pappageorge, secretary-treasurer, Culinary Union Local 226; Todd Cox, certified public accountant
