IRS takes first steps on Trump tax law as dueling narratives emerge

The Internal Revenue Service has begun publicly addressing elements of the Trump-backed tax law passed on Independence Day – informally

known as the One Big Beautiful Bill Act (OBBBA, P.L. 119-21) – by issuing descriptions of provisions, such as tax relief for tip and overtime pay,

marking the agency’s first step in what could become a broader implementation effort.

Tips, overtime, and more

In a fact sheet (FS-2025-03) released on July 14, the IRS outlined its intent to provide transitional relief for the 2025 tax year for individuals and

employers affected by new deductions and reporting rules related to tips and overtime pay. These provisions – along with new deductions for

car loan interest and for seniors – are effective from 2025 through 2028 under the OBBBA. While the fact sheet includes descriptions of the

four provisions, the agency indicated that forthcoming guidance will focus specifically on tips, overtime, and vehicle loan-related issues.

Tipped income: The tipped income provision allows employees and self-employed individuals to deduct up to $25,000 annually in qualified tip

income, with the deduction phasing out for taxpayers with modified adjusted gross income exceeding $150,000 ($300,000 for joint files). The

deduction is available to all eligible taxpayers – regardless of whether they itemize or claim the standard deduction. This provision, which was

a prominent campaign promise, applies to tips reported on a Form W-2, Wage and Tax Statement, Form 1099 (a family of forms used to report

various types of income), or directly by the taxpayer on Form 4137, Social Security and Medicare Tax on Unreported Tip Income.

However, the provision introduces potential challenges around how employers will track, verify, and report tip income under the new rules. To

support implementation, the IRS announced it will publish a list of “occupations traditionally receiving tips” by October 2, 2025 – 90 days after

the law’s enactment.

Overtime: The overtime provision – also a prominent campaign promise and available for both itemizing and non-itemizing taxpayers –

allows workers to deduct qualifying overtime compensation from their taxable income. The maximum annual deduction is $12,500 ($25,000

for joint filers), with the deduction phasing out for taxpayers with modified adjusted gross income exceeding $150,000 ($300,000 for joint

filers).

Car loan interest: The car loan deduction, which is available for both itemizing and non-itemizing taxpayers, permits individuals to write off

interest paid on loans used to purchase qualified vehicles – a benefit that could require new verification procedures for lenders and recipients

alike. The maximum annual deduction is $10,000, with the deduction phasing out for taxpayers with modified adjusted gross income

exceeding $100,000 ($200,000 for joint filers). A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross weight

rating of less than 14,000 pounds, and that has undergone final assembly in the United States.

Senior deduction: Individuals who are age 65 and older (before the close of the taxable year) may claim an additional deduction of $6,000

($12,000 for a married couple where both spouses are age 65 or more), with the deduction phasing out for taxpayers with modified adjusted

gross income exceeding $75,000 ($150,000 for joint filers). The deduction is available for both itemizing and non-itemizing taxpayers.

Kies takes helm as acting IRS chief counsel amid OBBBA rollout

As the IRS prepares to issue guidance on key provisions of the OBBBA, leadership changes within the agency’s legal and policy teams could

influence how that guidance is developed. Kenneth Kies, Treasury assistant secretary for tax policy, assumed the position of acting chief

counsel of the Internal Revenue Service, according to the agency’s official organizational chart updated as of July 16, 2025 – a role that has

seen several acting officials since President Trump took office.

Kies steps into the position as the Senate considers Trump’s nominee for the permanent position – Donald Korb – who previously served as

IRS chief counsel under President George W. Bush.

If confirmed, Korb would become the fifth person to hold the position this year, following the resignation of Marjorie Rollinson – the 49th

IRS Chief Counsel and the first woman to permanently serve in the role – who announced her retirement during a tax conference panel

on December 13. After Rollinson stepped down on January 17, William Paul briefly served in an acting capacity before being succeeded by

Andrew De Mello, a senior attorney in the IRS Chief Counsel’s office, who held the role until Kies stepped in.

Regulatory review

Kies’ expanded responsibilities come at a critical time, as the IRS begins identifying the provisions of the OBBBA for which it expects guidance

will be issued, the regulatory framework for its implementation will also be impacted by a new Memorandum of Agreement (MOA) between the Department of the Treasury and the Office of Management and Budget (OMB), dated July 4, 2025. The MOA outlines how the Office of

Information and Regulatory Affairs (OIRA) within OMB will review tax regulations.

To provide timely guidance to taxpayers, OIRA review under this MOA will conclude 45 days after submission of the information set forth in

Executive Order 12866. To ensure timely implementation of the OBBBA, the Secretary or Deputy Secretary of the Treasury, on a nondelegable

basis, may, with concurrence of the OIRA Administrator (not to be unreasonably withheld), designate certain tax regulatory actions for

expedited release. Such actions will be reviewed by OIRA for no more than 10 business days, subject to extensions mutually agreed upon by

Treasury and OMB.

This MOA was immediately effective and supersedes certain other MOAs entered into between Treasury and OMB in the past. Both OIRA and

Treasury have committed to work together in good faith to ensure that the practices outlined in the MOA align with the intent of its signatories

– Treasury Secretary Scott Bessent and OMB Director Russell T. Vought.

Competing messages of the OBBBA

Competing narratives around President Trump’s new tax and spending law are quickly emerging, with Vice President JD Vance recently

stepping up to increase public support as Republicans and Democrats in Congress continue to debate the package’s potential benefits and

impacts. The contrasting messages mark some early rounds in a broader messaging battle over the new law, unfolding in the wake of the

law’s signing on Independence Day.

In a speech on Wednesday in Pennsylvania, Vance ticked off myriad parts of the new package that he said would improve American’s lives for

years to come, and he encouraged supporters to help spread the message.

“Go and talk to your neighbors, go and talk to your friends, about what this bill does for America’s citizens,” Vance said. “Because we don’t

want to wake up in a year and a half and give the Democrats power back and realize that they’re going to take a $1,000 out of our hands to

give it to illegal aliens.”

Calling the new law transformational, Vance highlighted several benefits for individual taxpayers, including the new exemption on overtime

income as well as new household-focused benefits, such as the creation of dedicated savings accounts for children – known as “Trump

Accounts” – which come with a one-time, $1,000 federal contribution for each qualifying US citizen child born between 2025 and 2028. Vance

further touted the law’s incentives for businesses to invest domestically, stressing that “[w]e’re going to invest in American workers and

American families.”

A message from congressional Republicans

Vance’s remarks echoed themes found in recently published op-eds written by GOP taxwriters, including House Ways and Means Committee

Vice Chairman Vern Buchanan of Florida and Rep. Mike Kelly of Pennsylvania – both of whom stressed that the new law is about putting

working families first and restoring economic opportunity for the country.

“The bill includes many of my long-standing priorities: making the 2017 Tax Cuts and Jobs Act (TCJA, P.L. 115-97) permanent, easing the burden

of building and owning a home, eliminating federal taxes on tips and making the small business deduction permanent for millions of job

creators,” Buchanan wrote in the July 10 edition of The Hill.

Similar to Buchanan’s message, Kelly wrote in the Pittsburgh Tribune-Review on July 5 that Trump’s new legislation delivers a family of four in

his Keystone State district an extra $1,228 tax cut annually.

“That’s a major boost for families who have been crushed by years of inflation, record-high energy prices and an uncertain housing market,”

Kelly said.

Building on that message, in a July 14 interview with Bloomberg, House Budget Committee Chairman Jodey Arrington (R-Texas), who also

serves on the Ways and Means Committee, stressed the benefits of the reconciliation bill, emphasizing that the new law fulfills major

campaign promises by making the TCJA permanent, extending business tax breaks, and ensuring that tipped pay remain untaxed. (That said,

the cost of those benefits were partially offset through the inclusion of revenue raising provisions, such as the repeal or limitation on various

clean energy provisions.) He said that “we have supercharged the growth from the first Trump tax cuts,” underscoring the GOP’s belief that these policies will drive

long-term economic expansion.

Democrats counter

In contrast, Democrats continue to criticize benefits that they say accrue largely to the wealthy at the expense of middle- and lower-class

households. They echo the arguments they advanced during the bill’s legislative journey, signaling an intent to sustain pressure by framing the

law as inflaming economic inequality. By highlighting what they described as skewed priorities, Democrats appear poised to make the law’s

long-term distributional effects a central theme in their broader economic critique.

“Life is becoming more expensive under Donald Trump and Republican control of Congress,” House Minority Leader Hakeem Jeffries (D-N.Y.)

said at a press conference July 14. “There is nothing in the One Big Ugly Bill that will meaningfully make life more affordable for the American

people.”

He warned that millions would lose access to healthcare because of the bill’s Medicaid cuts, which he said were included as a cost-offset for

the package’s tax breaks. Jeffries also predicted that utility costs would rise, pointing to the rollback and elimination of numerous alternative

energy tax incentives that had been expanded in recent years. Additionally, Jeffries cautioned that the legislation would significantly increase

the federal debt.

“Every single House Republican who voted against the best interests of their constituents and voted to reward billionaires with massive tax

breaks will be held accountable,” Jeffries said.

Other recent Democratic criticism – part of a broader effort to challenge Republican framing of the law’s impact – has been directed at the

Social Security Administration (SSA) Commissioner Frank J. Bisignano, following a mass email sent to program beneficiaries that described the

new law as eliminating federal income taxes on Social Security benefits for most beneficiaries – a claim critics say misrepresented the law’s

actual provisions.

In a July 15 letter to the commissioner, Ways and Means Committee Ranking Member Richard Neal (D-Mass.) and other Democratic members

of the taxwriting panel pushed back strongly on that claim, writing:

“As you well know, the bill does not eliminate taxes on Social Security benefits. It is, however, expected to eliminate health insurance coverage

for 17 million people, force the closing of one in four long-term care facilities, reduce nutrition assistance to very poor seniors and families,

and add trillions of dollars to our national debt – while providing an average tax cut of nearly $309,000 for the wealthiest .1% of Americans in

2027.”

Meanwhile, Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) and 10 other Democratic senators – including several members

of the taxwriting committee – sent a similar letter to Commissioner Bisignano criticizing the SSA for including what they claimed to be

inaccurate information in an email about the OBBBA’s tax provisions affecting seniors. The senators urged the commissioner to retract the

statement and issue a correction clarifying the federal tax treatment of Social Security benefits.