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...
Clarissa
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