Is there really no tax on tips, overtime, and Social Security? Here's what to know

SAN FRANCISCO (KGO) -- The sweeping tax bill passed by Congress last year gives big tax breaks to millions of Americans... at least, potentially.

As taxpayers file returns by the April 15, 2026 deadline, CPAs and tax experts advise the benefits may not be as simple as they sound.

Is there really no tax on Social Security? No tax on tips? No tax on overtime?

7 On Your Side breaks it down

At the State of the Union address, President Donald Trump declared an end to some taxes.

"With the great Big, Beautiful Bill, we gave you no tax on tips, no tax on overtime and no tax on Social Security for our great seniors," President Trump said.

"And I yelled at my TV again because I keep telling people, the president and his officials mentioned 'no tax on Social Security,'" said certified public accountant and tax expert Larry Pon.

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But it's not true, Pon says. Pon says seniors are still liable to pay the tax based on income thresholds dating back to 1983.

However, the new law lets seniors over 65 deduct up to $6,000 per year from taxable income, whether they receive Social Security or not. It's called the Enhanced Senior Deduction, and that could reduce their overall tax bill.

Yet not everyone can claim the full amount.

Singles over age 65 with modified adjusted gross income, or MAGI, up to $75,000 get the full amount. So do married couples with a modified adjusted gross income up to $150,000.

But after that, the deduction gradually phases out. Singles over 65 with a MAGI over $175,000 and married couples with more than $250,000 get no enhanced deduction.

"We have no tax on tips, no tax on overtime," said President Trump in his address.

"Well, that's true," Pon said, "but like anything else, you've got to meet certain conditions here."

So, let's take "no tax on tips."

"It only applies to voluntary tips. You know, when you can choose how much the tip is," said Larry Pon.

All kinds of workers can now escape taxes on their tips, waiters, bartenders, Uber drivers, hairstylists, hotel maids.

But there are limits.

Tips don't qualify if they're mandatory. For example, if a restaurant adds a tip for large parties, it's not deductible.

Service fees also don't qualify.

Owners of businesses, like hair salons, cannot deduct their own tips even if they provide the services.

Deductions are limited to $25,000 and workers must have a Social Security number to claim it.

And what about "no tax on overtime?"

It's complicated.

Under the law, overtime means working more than 40 hours per week.

Part-time workers can't deduct daily overtime unless they work enough hours to meet the 40-hour-per-week rule.

Also, generally, the deduction applies to unscheduled overtime.

So many police officers, firefighters, long-haul truck drivers, shippers and others who work extended shifts by contract won't get the tax break.

"And we also made interest on auto loans tax-deductible, first time, but only if they're made in America," said President Trump.

Yes, there's new relief for car buyers.

Car loan interest is now deductible if the car was assembled in the United States, if it's used for personal use at least half the time, and if it's a new car with a new loan. If you just took out a loan to buy a used car, this won't help you.

With so many new rules piled on top of rules from past years, Pon says the old "1040 short form" and "1040-EZ" no longer exist.

"Nothing is simple, right? We're talking taxes here. Nothing is simple," said Pon.

Take a look at more stories and videos by 7 On Your Side.

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