3 Trump Tax Proposals to Pay Attention to

January 23, 2025 TruthUSA

During his first term, President Donald Trump launched a monumental piece of legislation known as the Tax Cuts and Jobs Act (TCJA). For his current term as the 47th president, Trump has said he plans to make key provisions of the TCJA permanent in addition to making sweeping changes to the tax code. These include eliminating taxes on Social Security benefits for seniors and on overtime pay.

So let’s take a closer look at what these and other proposals could mean for you and your wallet.

Social Security Tax Cuts

During his campaign trail, Trump was very vocal about cutting taxes on Social Security benefits for seniors.

According to the Social Security Administration (SSA), 40 percent of beneficiaries pay income taxes on their benefits.

Combined income is 50 percent of your benefit amount plus any other earned income. As far as the IRS is concerned, earned income includes wages, salaries, tips, earnings from self-employment, interest, dividends, and other taxable income that you must report on your tax return.

If you’re a single filer and your combined income is between $25,000 and $34,000, you could pay income tax on up to 50 percent of your benefits. If combined income is more than $34,000, up to 85 percent of your benefits could be taxable.

It works a bit differently for married couples filing jointly. If you and your spouse have a combined income between $32,000 and $44,000, you could pay taxes on up to 50 percent of benefits.

If that combined income exceeds $44,000, up to 85 percent of benefits could be taxed.

Combined income is sometimes called provisional income. But it’s important to note that calculating your combined income in retirement can be complicated because you’re no longer receiving a regular paycheck. You may be getting income from a 401(k), a pension plan, a municipal bond, an individual retirement account (IRA), a taxable brokerage account, or somewhere else.

All this could affect your combined income and, therefore, the amount of your Social Security benefit that is taxable. In some cases, people in the 22 percent federal income tax bracket could end up paying a real marginal tax rate of up to 40.7 percent because additional retirement income causes more of their Social Security benefits to become taxable, according to an analysis by T. Rowe Price.

To offer more perspective, the maximum Social Security benefit for someone retiring at full retirement age in 2024 was $45,864, according to Merrily Lynch. And for 2025, it’ll be $48,216 or $4,018 a month, according to the SSA.

That would put you in the 85 percent taxable benefit income space if you’re a single filer. So about $40,983 could be subject to taxation.

No Tax on Tips

Trump has also been very vocal about exempting tips from federal income tax.

“People that make tips, you’re going to be very happy,” Trump said during a campaign rally in Nevada.

However, critics argue that the proposal would have a minimal impact because tipped workers make up a small portion of the workforce and many have low federal income tax liability.

Nonetheless, there are about 4 million people in tipped occupations in the United States, according to the Budget Lab at Yale University. These include waiters, waitresses, bartenders, hairdressers, and others.

While the mean annual wage for waiters and waitresses is $36,530, according to the latest data by the Bureau of Labor Statistics (BLS), the highest earners make more than $60,000.

So those taxes on their tips could benefit substantially.

Overtime Pay

Trump has proposed a blanket federal income tax exemption on income earned from overtime work. While not much is known about the design of this particular tax proposal, it’s important to understand how overtime pay works.

Under The Fair Labor Standards Act (FLSA), employers are required to pay overtime to employees who work more than 40 hours a week. (There are exemptions, such as salaried employees.)

Overtime pay is calculated at a rate of 150 percent of their regular pay rate. So if your standard pay rate is $17 an hour, then your overtime pay rate is $25.50.

Overtime pay is still considered ordinary income. Thus, it is taxed the same way as your regular pay. Your regular and overtime pay is part of your total annual earned income, which determines your tax bracket along with your filing status.

However, overtime pay could push you into a higher tax bracket. Suppose your annual income minus any overtime pay is $48,000 in 2025. That would put you in the 12 percent tax bracket. But if your overtime pay raises your total annual income to $50,000, then the amount you earn above $48, 475 will be taxed at 22 percent, unless you are the head of the household, in which case you wouldn’t reach the 22 percent tax bracket.

The Bottom Line

Trump paved the way for substantial tax cuts during his first term. And while some of those provisions are set to expire at the end of 2025, the president has said he’s driven to reinstate those provisions in addition to ushering in new tax cuts. These particular proposals could benefit certain retirees, tipped workers, and those accustomed to overtime work. Still, Trump’s new proposals are just that. And he would require the approval of Congress to make those new tax policies a reality. For Americans who may be affected, it’s important to pay attention to these developments and act accordingly.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.

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