In his recent letter to the Review-Journal (“Tax bill”), Arthur Timm states that “tips and overtime pay may be exempt from income tax for some qualifying workers.” What he does not explain is who those qualifying workers are. Workers generally qualify if they are employed in occupations that customarily and regularly received tips before Dec. 31, 2024, possess a valid Social Security number for employment and otherwise meet the eligibility requirements established by the law.
Mr. Timm next points out that workers must still pay Social Security and Medicare payroll taxes of 7.65 percent on those earnings. That is true, but it is also beside the point. The purpose of the legislation was to reduce federal income taxes, not payroll taxes. Those are two different taxes serving two different purposes, and the bill was never intended to eliminate payroll taxes.
He also writes, “Accordingly, those workers that make so little as to not pay income taxes won’t get any tax break.” That is simply a statement of arithmetic. If a worker owes no federal income tax, there is no federal income tax liability to reduce. The same is true of any income tax deduction or credit. That is not a flaw in the legislation; it is how income taxes work.
What was largely overlooked in Mr. Timm’s letter is that the legislation does far more than address tips and overtime. It permanently extends many of the individual income tax provisions first enacted in 2017 that otherwise would have expired, including the significantly larger standard deduction that millions of taxpayers now claim each year. Whether one supports or opposes those policies is a matter of personal opinion, but accurately describing what the legislation does should not be.
Public policy is best debated when everyone begins with the same set of facts. We may disagree about whether the tax bill is good or bad policy, but we should at least agree on what it actually does.
