Updated August 8th, 2025
With the recent passage of the One Big Beautiful Bill (OBBB) on July 4, 2025, there's been a lot of buzz about tax relief for everyday Americans, particularly seniors relying on Social Security, service workers living off tips, and those grinding out overtime hours. President Trump campaigned hard on these ideas, promising to put more money back in the pockets of working families and retirees. But as with any major tax legislation, the devil is in the details. While the bill delivers some meaningful breaks, it doesn't fully live up to the "no tax" hype across the board, and the benefits come with limits and phase-outs that could catch people off guard at tax time in future years. Let's break it down step by step, using real world examples to show how this might play out.
Even with these changes, it's worth remembering: tax relief sounds great on paper, but incomplete promises can still leave folks paying more than they expect. One thing that I’ll highlight, just to inform readers through the remainder of the article, all estimates for amounts of tax due are based on 2024 tax rates (as for the blog article I’m dropping numbers into my 2024 tax software to create these estimates and then making the adjustments for the tips/overtime/social security changes).
Federal Treatment of Tips: A Deduction, Not a Full Exemption
OBBB keeps more of your tips in your wallet.
Starting with tips, the OBBB introduces an above the line deduction for eligible tip income (above the line meaning that it comes out before calculating your federal adjusted gross income (AGI) and you can still receive a benefit even if you use the standard deduction), effective retroactively from January 1, 2025, through 2028. This means tipped workers like servers, bartenders, or delivery drivers, can subtract qualifying tips from their AGI before calculating their federal income tax. The deduction caps at $25,000 for individuals, phasing out for higher earners (starting around $100,000 AGI for singles). Importantly, this only applies to federal income taxes; tips remain subject to payroll taxes (Social Security and Medicare (through SECA for self-employed folks and FICA for employed individuals))).
Take a hypothetical Connecticut server, who files Single, earning $30,000 in wages plus $20,000 in tips annually. Under the old rules, those tips would be fully taxable as income, potentially pushing her into a higher bracket and increasing her AGI, which could limit credits like the Earned Income Tax Credit. In this example, if this were her only income, the amount of tax would be $3,881. Now she can deduct up to $20,000 of those tips, effectively shielding that amount from federal income tax and keeping her AGI lower. This results in a tax amount of $1,481, savings of $2,400. But here's the catch: automatic gratuities (like those added to large parties) may not qualify, and you'll need solid records to claim it. For service workers in high-cost states like ours, this is a welcome boost, but it's currently set to sunset after 2028 unless extended.
Overtime Pay: Relief for the Overworked, with Strings Attached
Thanks to tax reform, overtime just became more valuable, but how much more valuable?
Similarly, the bill offers a deduction for overtime pay, again as an above the line adjustment up to $12,500 for individuals ($25,000 for joint filers), effective for 2025–2028. This targets blue collar and shift workers who rack up extra hours, exempting that overtime from federal income tax but not payroll taxes (the same Social Security and Medicare taxes discussed in the tax on tips section). To qualify, the overtime must meet FLSA (Fair Labor Standards Act) definitions generally, hours over 40 per week at 1.5x pay.
Consider a Single factory worker in Hartford pulling 10 overtime hours weekly at $30/hour (time-and-a-half = $45/hour), adding $23,400 in overtime annually, bringing his annual pay to $85,800. Prior to the OBBB, he would pay income taxes on this full amount, an estimated tax bill of $10,470. After the OBBB, he can deduct $12,500 from his overtime earnings, resulting in a tax of roughly $7,720, which is a tax savings of $2,750. For joint filers, doubling that $12,500 to $25,000 could mean even more relief. But critics point out this isn't the full "no tax on overtime" promised as it is capped, and higher earners see it phase out.
This provision should popular among unions and working class voters, as you can see the tax savings can be substantial, but it's no silver bullet especially if your overtime exceeds the cap.
Social Security Benefits: Partial Relief, Not the Promised Elimination
Here's where things get murkier. During the campaign, there was talk of fully exempting Social Security benefits from federal taxes, which would have been a huge win for seniors. But the final OBBB doesn't deliver that. Instead, it provides an additional $6,000 standard deduction for seniors (individuals over 65), on top of the existing age-based bump, for 2025–2028. This phases out for higher income retirees (starting at $75,000 AGI for singles, $150,000 for joint filers). Up to 85% of Social Security benefits can still be taxable if your combined income exceeds thresholds.
For a Single Connecticut retiree collecting $48,216 in Social Security plus $20,000 from a pension, about $13,092 of benefits might have been taxable pre-OBBB, resulting in a federal tax due of $1,751. The same amount of these Social Security Benefits will be taxable after the OBBB, but the extra $6,000 standard deduction (plus the annual increase to the standard deduction) reduces the tax due to $933, saving real money and nearly cutting the amount of tax due in half. But for those with more income, the tax relief will be much less significant.
Take a moment to digest this: despite the rhetoric, full tax-free Social Security didn't make the cut, leaving many seniors shortchanged compared to the promises and the benefits they will receive. Additionally, the benefits they will receive only extend through 2028. BUT for many seniors, the benefits received will still be substantial in terms of the % of tax they pay but not very substantial in the raw dollar value of tax reduction (noting in the example I’ve outlined above while the tax nearly gets cut in half, the amount saved is only $818).
State Implications and the Bigger Picture in Connecticut
Good news for Connecticut residents: the federal above-the-line deductions for tips and overtime in the One Big Beautiful Bill (OBBB) do flow through to your state return. Since Connecticut’s income tax starts with federal adjusted gross income (AGI), the deductions for up to $25,000 in tips and $12,500 in overtime pay ($25,000 for joint filers) reduce your CT AGI as well. For our hypothetical Hartford server earning $20,000 in tips, the full deduction could lower both federal and state taxable income, potentially saving $600–$1,400 in CT taxes (at 3–6.99% rates) on top of federal savings. The same goes for our factory worker’s $12,500 overtime deduction, which could cut state taxes by $375–$875. It is worth noting that CT (and other states) could potentially create additions for these amounts to remove this benefit, but to date they haven’t.
However, the ‘Social Security relief’ a $6,000 additional standard deduction for seniors, doesn’t help at the state level. Connecticut starts with federal AGI, which isn’t reduced by below the line deductions like the standard deduction. While CT offers its own Social Security subtraction (fully exempt if CT AGI is under $75,000 single/$100,000 joint, phasing out above), it’s unrelated to the OBBB’s change.
Based on the above examples, the OBBB could mean up to $13,952 in combined federal and CT state savings over four years for some workers, especially in high tax Connecticut. But with the provisions expiring in 2028, and Social Security relief limited, keep meticulous records and consult a tax pro to maximize benefits especially with retroactive application for 2025, and make sure you aren’t hit with an unexpected tax bill come tax time. As we’ve seen with other tax rules (like gambling winnings), bold promises don’t always deliver evenly. Stay sharp, and let’s see if these breaks stick around.