How does no tax on tips and overtime affect retirement monthly payments?

[mswright5911]

Does the income earned from Tips and Overtime that is now not taxed have any affect when the person retires and starts collecting monthly Social Security payments? Are all monies earned still added to the annual S.S. statement or is the money earned on a W2 without paying taxes on it not added to the S.S. statement thereby lowering the amount earned each year for Social Security purposes?

[dev145]

No, the income earned from Tips and Overtime that is now not taxed will not have  any affect when the person retires and starts collecting monthly Social Security payments. It is important to note that income is only excluded from federal taxes not from FICA (Social Security and Medicare) taxes. That means, you still have to pay FICA taxes on those excluded income and it will be included on SS statement and count towards your benefit calculations. 

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[ClarissaA1]

The short answer:  money that is exempted from federal income tax under the no tax on tips and the no tax on overtime provisions is included in countable earnings for Social Security purposes, so these provisions will not reduce future retirement benefits

The NoTax on Tips and No Tax on Overtime provisions of the One Big Beautiful Bill Act provided federal income tax relief.  Social Security and Medicare are still collected on these earnings - they are considered payroll taxes, not income taxes.   

Employers are required to report the full earnings on Form W-2, and they will need to break out the qualified tip and overtime compensation on Form W-2 so that the employee will be able to enter the information when they prepare their tax return.  

The maximum deduction for qualifying tip income is $25,000, and the maximum deduction for qualifying overtime earnings is $12,500 ($25,000 for joint filers.)    Both provisions are subject to phase outs - when the taxpayer's income exceeds $150,000 ($300,000 for joint filers.) 

https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-sen...