March 18, 2026<\/p>\n
No Tax on Tips \u2013 No Tax on Overtime \u2013 No Tax on Social Security.<\/em> This trifecta of slogans from the 2024 campaign was so compelling that although one candidate coined them, the other candidate embraced them as well.<\/p>\n The problem with these slogans is that they have made bad law. The first two slogans, on tips and overtime, violate one of the most important pillars of good tax policy: horizontal equity, or the policy of taxing likes alike. It is terrible policy to tax a dollar from one source \u2014 a tip or overtime \u2014 differently from a dollar from another source, say, salary. Doing so not only creates economic mischief, encouraging payors and payees to recast one type of payment as another (i.e<\/em>., rearrange compensation packages to provide for even less wages and rely more on tips), but it taxes individuals with precisely the same amount of income in very different ways, which is the antithesis of horizontal equity.<\/p>\n Moreover, as enacted, the first two slogans are simply untrue: tips and overtime are still subject to the Social Security (employment) tax, even though for many workers who receive tips or overtime, the Social Security tax creates a much heavier burden than the federal income tax. And the provision relating to tips contains a huge marriage penalty: it allows a tipped worker who is single and receives $25,000 of tip income to pay no income tax on that income, but if that worker is married to another worker who receives $25,000 on tips, the couple<\/em> will be fully subject to income tax on $25,000 if they file jointly, and on all $50,000 of tips if they file separately, because the tips deduction is not available to married individuals unless they file jointly. In addition, tips over $25,000 are fully subject to tax, and the $25,000 is reduced, eventually to zero, for workers whose \u201cmodified adjusted gross income\u201d is over $150,000.<\/p>\n Moreover, the new law doesn\u2019t even cover all amounts people might consider tips, or overtime. For example, amounts that are not completely voluntary, such as a 20% charge not merely suggested but imposed by a restaurant on parties of more than 10 with no possibility of opt-out by the customer (a good thing for servers because it ensures that they won\u2019t be stiffed by a large party that is hard to serve) will not<\/em><\/strong> be a qualified tip because it is not considered voluntary. The overtime slogan is similarly misleading: only overtime up to $12,500 escapes income tax (twice that for married individuals, so there\u2019s no marriage penalty), but overtime \u00a0paid to workers who are covered by a statute other than the Fair Labor Standards Act, such as airline or railroad workers, will not benefit from the new legislation at all, and, as in the case of tips, the deduction phases out at higher income levels. And both deductions disappear after 2028.<\/p>\n The third slogan is bad policy because it misleads: Social Security was never taxed unless <\/em>an individual had substantial income in addition to Social Security, which reflects the policy objective of vertical equity, or taxing in accordance with ability to pay. To make the policy issue worse, the legislative response is not targeted to Social Security recipients; it simply increases the additional standard deduction available to taxpayers over a certain age.<\/p>\n Finally, in the case of the tips provision, evaluation must consider the possible effect of the slogan on the tipper, which economists call the \u2018incidence\u2019 problem: if I believe that my server will not have to pay tax on tips, as the slogan suggests, it would be rational for me to tip less, in which case the benefit of the slogan inures to me, not to the tipped worker.<\/p>\n In sum, the devil is always in the details, and in the case of the catchy slogan legislation, there are a lot of details.<\/p>\n Bio: Alice G. Abreu is the Honorable Nelson A. D\u00edaz Professor of Law at Temple University Beasley School of Law and Director of the Center for Tax Law and Public Policy. A leading scholar in federal income tax and tax policy, she is the Immediate Past Chair of the American Bar Association Section of Taxation and received a Lifetime Achievement Award from the Tax Section of the Association of American Law Schools in 2026; earlier in her career she practiced tax law at Dechert LLP and clerked for Judge Edward N. Cahn of the U.S. District Court for the Eastern District of Pennsylvania.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" March 18, 2026 No Tax on Tips \u2013 No Tax on Overtime \u2013 No Tax on Social Security. This trifecta of slogans from the 2024 campaign was so compelling that although one candidate coined them, the other candidate embraced them as well. The problem with these slogans is that they have made bad law. 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