Dem
47
GOP
53
Donald Trump made a lot of campaign promises and he technically fulfilled some of them, but the net result is not always what the voters were expecting. The problem is that while he wanted to pass out goodies to his voters, like no tax on tips or overtime, budget hawks in the House attached a lot of conditions to them so many people don't qualify and even those who do get less benefit than they were expecting. This could actually backfire on Trump. If he hadn't made the promises, people would have expected this year's tax bill to look like last year's. But due to the promises, many people are expecting a big refund and they may not get it due to the complexity of the law and the many exceptions built into it to make sure the government doesn't lose too much money.
For example, the no tax on overtime applies only to people covered by the 1938 Fair Labor Standards Act. Are you covered? Call your lawyer. It's not simple. Even IRS doesn't know, so it is consulting the Department of Labor to find out. Lynne Camillo, an IRS lawyer, recently said: "We are not, as IRS attorneys, experts in the Fair Labor Standards Act so we are working on ways to point taxpayers to resources put out by the Department of Labor to help them make determinations in more complicated situations." Having an IRS lawyer say the IRS lawyers cannot understand the law is not a great start. And even if someone manages to qualify, the rules are complicated. For example, if someone is paid time-and-a-half for overtime, only the "half" is tax free, which requires an administration to keep track of "regular" time and "qualifying" time. That wasn't there before. Will companies and taxpayers be able to get it right? We are not holding our breath. Oh, and this holds only in weeks the person worked more than 40 hours, even if their regular work week is less.
Nimble companies may be able to update their software to keep track of all of this accounting, but not every one of them will be able to do it. To make it more complicated, the benefit is retroactive to Jan. 1, 2025, when no one was keeping track of any of this. Since companies do not have to report overtime, it is up to employees to verify and document their eligibility and do all the bookkeeping correctly. Good luck with that for people with no training as bookkeepers or accountants. Could we imagine any fraud here, with people making all kinds of wild claims? We don't like imagining fraud, so we won't imagine any. Problem solved.
The no-tax-on-tips applies only to industries where tipping is common. Expect many lawsuits about which ones those are. If a supermarket puts a box at every checkout marked "tips," do those employees now qualify? And it applies only to tips that are reported and taxed. If waiters in restaurants get some tips in cash from diners and the boss says: "Just keep the tips and don't tell me about them," those tips are already not taxed so there is no refund. If waiters start reporting them to get the tax break, without understanding how all this works, they may be surprised to discover that they are suddenly liable for income tax (which they get back) but also for FICA and Medicare taxes, which they don't get back.
There is also a provision giving people a break on interest for car loans, but it is complicated and applies only to cars where the final assembly is in the U.S. What if a fully assembled car comes directly from a foreign country but a foxtail hanging from the rearview mirror is placed in the car by the dealer? Is that the final assembly? OK, what if the final assembly is just putting the wheels on? You see the problem? How are buyers supposed to know this? Well, you can put the VIN in the NHTSA database. Got that?
The real winners here are going to be the tax-prep professionals because many people who previously did their own taxes, possibly with some software, are not going to be able to figure all this out. They may like the idea of the tax breaks in the abstract, but when it comes to actually getting them, their enthusiasm may fade and with that, their plans to vote for the Republicans who devised the whole maze. (V)