Both provisions have the potential to be worth thousands of dollars, depending on the individual taxpayer’s situation and how much they earn. That fact is music to the ears of workers who are struggling to pay higher prices for just about everything.

But there is also the possibility they could cause tension among employees at the same company who could now be taxed differently, says says Marc Gerson, member at Miller & Chevalier and former majority tax counsel for the House Ways and Means Committee, and undermine tax fairness. Why should a server in a restaurant, for example, be exempt from paying taxes while a retail worker earning the same amount is not?

The provisions “arbitrarily reward some workers over others facing the same financial circumstances,” writes Abir Mandal, senior policy analyst at the right-leaning Tax Foundation. This, in turn, “disadvantages workers unable to access tipped or overtime-heavy roles, such as those with caregiving responsibilities or fixed schedules.”

Still, they have garnered widespread support among both Democrats and Republicans. Here’s what taxpayers need to know.

No tax on tips explained

For tipped workers, the legislation provides an above-the-line deduction for the first $25,000 in tips, meaning they can reduce their federal taxable income by that amount. Anything over that does not qualify, and this is not a total exclusion from paying taxes—where applicable, workers will still owe state, local, and payroll taxes that go toward Social Security and Medicare. That said, it could still be worth thousands of dollars a year in federal taxes that tipped workers no longer have to pay.

Exactly what service roles qualify under the legislation is still being hashed out. It is now up to the Treasury Department and IRS to write the regulations for businesses and individual taxpayers to follow, and to list the jobs that qualify for the deduction. The deduction does phase out for those who earn $150,000, and is available for tax years 2025 to 2028, when Trump leaves office. To qualify, the service worker—and their spouse, if they have one and file jointly—needs to list a Social Security Number, meaning many immigrants and those married to them may not qualify.

“To be a ‘qualified tip’ for purposes of the deduction, the amount must meet certain requirements, including being paid voluntarily and determined by the payor,” says Jennifer Karpchuk, co-chair of Holland & Knight’s state and local tax team. “Therefore, for instance, the deduction may not apply where a restaurant adds a mandated gratuity to the bill for parties over a certain size.”

Because many tipped workers are low-income, almost 40% already don’t pay federal taxes on their tips, says Meg Wheeler, certified public accountant and founder of the Equitable Money Project.

According to the Yale Budget Lab, around 4 million people—or around 2.5% of U.S. workers—are traditionally considered tipped workers. There is some worry among experts and economists that the policies could encourage some businesses and workers to change their pay structure to receive more in tips or overtime pay. Just when Americans are growing more and more fatigued at being asked to tip at seemingly every interaction, this change could supercharge the practice.

Businesses may also need to rework how they report tipped income on employee tax forms. Distinguishing between regular wages, tips, overtime, and bonuses adds additional work for employers to absorb, Mandal notes, as well as government revenue departments. At the same time, it could encourage employers not to raise base wages, he says, further shifting the burden of compensation away from the company. 

“It is a win for the business owner,” Karla Dennis, a tax strategist, previously told Fortune about the policy. “They may have more of their employees wanting to work the jobs that earn tips, and it may also help to get more people in these service-oriented jobs.”

No tax on overtime explained

Those earning overtime pay can deduct up to $12,500 ($25,000 for married couples filing jointly), depending on income. Like the tipped income provision, this is available for tax years 2025 through 2028 and phases out for income above $150,000 ($300,000 for couples).

Many of the nuances of the tipped provision also apply here, including that both the taxpayer and their spouse needs a SSN to qualify, experts say. Additionally, overtime deductions must receive overtime pay as defined by the Fair Labor Standards Act (FLSA) of 1938, says Karpchuk.

“It would not apply to overtime that is not required under the FLSA but is instead paid because of contractual provisions or because of more stringent state laws,” she says. For example, overtime promised under a collective bargaining agreement would fall under a contract, while California has a state law requiring daily overtime for hours worked in excess of eight in one day.

More information on exactly what jobs the provisions apply to will be made available in the months ahead.