REAL AMERICA Act

Summary#

This bill would change many tax rules. It creates a new federal deduction for cash tips that employees report to their employer. It also creates a deduction for "qualified overtime compensation" (overtime paid under the Fair Labor Standards Act that is above the regular rate). Both deductions would be unavailable for taxpayers with modified adjusted gross income over $450,000 ($900,000 for joint filers). The bill would let non-itemizers claim these deductions and would require employers and the Treasury to change withholding tables and W-2 reporting to show overtime amounts.

The bill would stop treating Social Security benefits as part of taxable gross income for tax years beginning after December 31, 2025. To offset reduced transfers to Social Security trust funds, it appropriates funds from the Treasury equal to the reduction for each fiscal year.

The bill also changes how some partnership interests are taxed. It amends rules for when a partner who receives a partnership interest for services must include income and how that interest is valued. It adds a new set of rules (a new section 710) for partners who provide investment management services to partnerships. Under those rules, certain long-term capital gains and some other partnership income tied to investment services can be treated as ordinary income instead of capital gain, limits how related losses are treated, changes treatment of dispositions and distributions, adds reporting and recordkeeping rules, and affects whether some partnership income counts as self-employment income for Social Security and Medicare. The bill removes a prior provision (section 1061) and adds penalties and disclosure rules tied to these changes.

Several parts take effect for taxable years beginning after December 31, 2025, while many partnership provisions apply to taxable years ending after the date of enactment or to transactions after enactment. The Secretary of the Treasury is given authority to issue regulations and guidance needed to implement these rules.

What it means for you#

• If you report cash tips to your employer, you could claim a federal deduction for those tips on your tax return, even if you do not itemize. That deduction would not be available if your modified adjusted gross income is over $450,000 ($900,000 for joint filers).
• Overtime that meets the bill's "qualified overtime compensation" definition would be deductible, and employers would need to report total qualified overtime on employees' W-2 forms. The same income limits apply to this deduction.
• Social Security benefits would no longer be included in taxable gross income for tax years after 2025, according to the bill's change to section 86.
• If you receive a partnership interest for providing services, the bill changes how the interest is valued for tax purposes and may cause some gains that were treated as capital gain to be taxed as ordinary income instead. It also creates special rules for partners who provide investment management services and can change whether partnership income is treated as self-employment income for Social Security and Medicare purposes.
• Employers and payers would see changes to withholding tables and reporting requirements to reflect the new deductions and overtime reporting.

Expenses#

• The bill includes an appropriation: it directs that for each fiscal year the Treasury shall pay each Social Security or Railroad Retirement fund an amount equal to the reduction in transfers to that fund caused by repealing the inclusion of Social Security benefits in gross income.
• No publicly available information on broader budget estimates, revenue effects, or implementation costs is included in the bill text provided.

Proponents' View#

No publicly available information.

Opponents' View#

No publicly available information.