Congress offers modest, temporary tax break for workers who get bonuses
H.R. 557 — Working Class Bonus Tax Relief Act of 2025 · Filed by Don Bacon (R-NE) · Introduced Jan 20, 2025 · Referred to committee
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What it does
This bill creates a new federal income tax deduction for employees who receive bonuses from their employer. Workers earning below $100,000–$200,000 (depending on filing status) can deduct up to 15% of their bonus income from their taxable income, reducing their federal tax bill. The deduction expires on December 31, 2029.
Why we flagged it
The bill's operative mechanism is a time-limited, income-capped deduction for a specific category of wage income (bonuses). It is straightforward tax relief, not a structural reform or broad entitlement—and it sunsets in 2029, making it a temporary measure rather than permanent policy.
What the text implies
- The 15% cap on bonus deductions may incentivize employers to reclassify regular wages as bonuses to reduce employee tax burden (and potentially their own payroll tax exposure), blurring the line between wages and bonuses in ways the IRS may struggle to police.
- The income cap ($100k–$200k depending on filing status) creates a cliff effect: a worker earning $100,001 loses the entire deduction, potentially discouraging wage growth or creating tax-planning distortions near the threshold.
The full analysis lists 4 implications of this text.
Who stands to gain
individual workers receiving bonuses; employers (potentially, if they use bonus reclassification to reduce payroll tax exposure)