REAL AMERICA Act

Key Points

• The bill would let workers deduct their cash tips from taxable income, so most tipped workers pay no federal income tax on tips. The break phases out for people earning more than $450,000, or $900,000 for married couples filing jointly.
• Social Security benefits would no longer be counted as taxable income starting in 2026. To protect benefits, the Treasury would pay the Social Security and Medicare trust funds back for the tax money they would otherwise lose each year.
• Hourly workers could deduct overtime pay from their taxable income. Only the extra pay above the regular rate for hours beyond 40 a week would qualify, and the same $450,000 income cap applies.
• The bill closes the carried interest loophole by taxing investment managers' share of profits as ordinary income instead of at lower capital gains rates. This is meant to help pay for the worker and retiree tax cuts.
• Investment firms that try to dodge the new carried interest rules face a 40 percent penalty on the underpaid tax, double the usual 20 percent penalty.
• Most changes start with the 2026 tax year. The carried interest changes take effect right when the bill becomes law rather than waiting for the next tax year.