Bill would end taxes on tips, overtime, and Social Security starting in 2026

What does this do?

HR 2621 would allow workers to deduct cash tips and overtime pay from their federal taxable income, available to all filers regardless of whether they itemize, though the deductions phase out above $450,000 for individuals or $900,000 for couples. Starting in 2026, the bill would also eliminate federal income taxes on Social Security benefits entirely. Additionally, it would require that carried interest income earned by hedge fund and private equity managers be taxed as ordinary income rather than at the lower capital gains rate, with penalties up to 40 percent for those who attempt to circumvent the new rules.

Who does it affect?

Workers who receive tips or overtime pay, retirees receiving Social Security benefits, and high-earning investment fund managers would all be directly affected. The deductions for tips and overtime are unavailable to individuals earning more than $450,000 or couples earning more than $900,000 annually.

Why does it matter?

Eliminating taxes on Social Security benefits would reduce federal revenue that the Social Security trust funds currently receive, which the bill addresses by requiring the general treasury to transfer replacement funds. Reclassifying carried interest as ordinary income would increase the tax burden on hedge fund and private equity managers who currently pay the lower capital gains rate on that income.

What does it cost, and who pays?

• Treasury backstops Social Security revenue loss
• Up to 40% penalty for carried interest evasion