Fed's Powell Says Still No Hurry to Lower Interest Rates
Federal Reserve Chair Jerome Powell again signaled that officials will be patient before lowering borrowing costs further, saying the central bank doesn't need to rush to adjust interest rates. Powell spoke Tuesday during testimony before the Senate Banking and Housing Committee for the Semiannual Monetary Policy Report to Congress. (Source: Bloomberg)
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Bloomberg
25 minutes ago
- Bloomberg
McGonegal: The Fed Is Always Behind The Curve
President Donald Trump says he has three or four people in mind to succeed Federal Reserve Chair Jerome Powell when his term expires next year. The US President and The Fed have been at loggerheads over rate cuts. Capital Link CEO, Brett McGonegal told Bloomberg's Lizzy Burden on Horizons Middle East and Africa that the Fed has remained behind the curve with their print reads and decisions. (Source: Bloomberg)
Yahoo
an hour ago
- Yahoo
No tax on tips and overtime: What workers should know and who stands to see their taxes shrink
There are plenty of provisions in the massive tax bill known as the One Big Beautiful Bill Act that lawmakers are hotly contesting as Republicans rush to finalize the bill by their self-imposed July 4 deadline. But one tax law change that — until recently — seemed to have broad, bipartisan support is the proposal to eradicate taxes on tips. The problem is, that provision — at least, as it's been proposed both in the huge tax bill as well as in a standalone act that quickly passed the Senate with bipartisan support — wouldn't help all that many workers. And, truth be told, even that provision isn't a slam dunk, as some Republicans have said it's a pricey outlay with little prospect of sparking the economic growth they like to see from tax cuts. Also part of the major tax bill is a proposal to remove taxes on overtime pay, although the House and Senate aren't currently in sync on whether the tax break should be capped or not. Here's how the Senate bill compares to the House bill on each of these two provisions. Senate version House version Type of tax break Tax deduction Tax deduction Value of tax break Up to $25,000 No cap Income limits Tax break decreases by $100 for every $1,000 of modified adjusted gross income above:$150,000 (all other filers); $300,000 (married filing jointly) Tax break unavailable at modified adjusted gross income above:$160,000 (all filers) Senate version House version Type of tax break Tax deduction Tax deduction Value of tax break $12,500 (all other filers); $25,000 (married filing jointly) No cap Income limits Tax break decreases by $100 for every $1,000 of modified adjusted gross income above:$150,000 (all other filers); $300,000 (married filing jointly) Tax break unavailable at income above:$160,000 (all filers) Under current law, a worker must pay federal income tax and payroll taxes on tip income, just as they do on regular wages. Employees are required to report monthly tips exceeding $20 to their employers, who must then withhold income and FICA taxes and report the amount to the IRS. However, that could change if the big, beautiful bill becomes law. The Senate's current version would create a new deduction for qualified tip income, eliminating federal income taxes on up to $25,000 in tips for workers for tax years 2025 through 2028. The tax break would start to phase out for taxpayers with modified adjusted gross income (MAGI) of $150,000 ($300,000 if married filing jointly) — the value of the deduction would drop by $100 for every $1,000 of income above that amount. The House's version doesn't cap the dollar value of the tax break, but it would limit the tax break to taxpayers with MAGI of $160,000 or less. (Neither proposal affects payroll, or FICA, taxes.) 'An estimated four million individuals receive tip income. So those people could see a significant tax benefit,' says Mark Luscombe, principal tax analyst with Wolters Kluwer Tax & Accounting. 'The [proposed] deductions for tips are available to non-itemizers, so they can be claimed even if the taxpayer claims the standard deduction.' Workers would still need to report tip income and pay payroll taxes. While federal income tax would be withheld from paychecks, those amounts would be refunded when filing their income tax return. The tax break wouldn't apply only to employees. Some independent contractors and business owners could also qualify, provided their business gross receipts exceed business deductions, losses and costs, including the cost of goods sold. Get started: Match with an advisor who can help you achieve your financial goals While this provision could eliminate taxes on tip income for millions of Americans, only a fraction of taxpayers may see a meaningful benefit. A study by the nonpartisan Tax Policy Center found that households earning $33,000 or less wouldn't benefit much, as they typically owe little to no federal income tax. For all of these households (including those who don't earn tip income), after-tax income would rise by just $10 a year on average. Fully 40 percent of U.S. households that report tip income would not see any tax break from the proposal, according to the Tax Policy Center report. That means 60 percent of households that report having tip income would benefit (that translates to about 2 percent of all U.S. households enjoying this tax break), and their tax bills would drop by an average of $1,800 a year, according to the report. An average of $1,800 a year is not nothing. But that reward wouldn't go to the lowest-earning households. Of those households making less than $33,000 a year, just 1.4 percent of households would benefit, and for those households, their after-tax income would rise by $450 a year on average. Learn more: New 'bonus' tax deduction up to $6,000 could be on the way for those age 65 or older Employees who earn overtime may get a break on their federal taxes if the big bill becomes law. Under current law, employees must receive overtime pay — at least time and a half — for any hours worked beyond 40 in a workweek. 'There has been a trend toward less use of overtime pay; however, under the Biden administration, the salary threshold for employees eligible for overtime pay was significantly raised, currently at $58,656 and adjusted for inflation every three years,' Luscombe says. 'The House bill will require clear reporting of overtime pay by the employer to support the claimed deduction.' The proposed overtime tax break would function similarly to the tip income deduction. Overtime wages would still be subject to withholding, but workers could deduct federal income taxes paid on those wages when filing their returns, even if they don't itemize. The deduction would apply to tax years 2025 through 2028. The White House estimates that the average overtime worker would receive a tax cut of between $1,400 and $1,750 annually. But experts argue that the tax benefits wouldn't benefit those who earn lower levels of income. While some experts say workers who earn overtime and tip income would pay less taxes if the big bill becomes law, others warn the measure could increase the federal deficit and result in a significant loss of revenue. The Joint Committee on Taxation estimates that the tip provision would reduce federal revenues by $40 billion from fiscal years 2025 to 2034, with most of the impact concentrated between 2026 to 2029, when the deduction would be in effect. The Congressional Budget Office estimates exempting overtime pay would cost $124 billion through 2028. Some analysts also warn that eliminating taxes on overtime pay could disrupt the labor market. The Tax Foundation, a nonprofit tax policy group, said removing income taxes on overtime could 'distort' the labor market by encouraging more workers to take overtime shifts, potentially making hourly roles more attractive than salaried positions that are exempt from overtime rules. 'Although the bill tries to restrict businesses not currently relying on tip income and overtime pay from seeking to take advantage of these proposed changes, it is still possible that there could be shifts toward tip income and more overtime pay to try to take advantage of the deductions,' Luscombe says. Learn more: These 9 states have no income tax — that doesn't always mean you'll save money Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
CNBC
an hour ago
- CNBC
Dollar lingers near 3-1/2-year low as traders bet on U.S. rate cuts
The dollar drifted on Friday, hovering near its lowest level in 3-1/2 years against the euro and sterling, as traders wagered on deeper U.S. rate cuts while awaiting trade deals ahead of a July deadline for President Donald Trump's tariffs. Market focus this week has been on U.S. monetary policy. The prospect of Trump announcing the next Federal Reserve Chair, who is expected to be more dovish, earlier than usual to undermine the current chair Jerome Powell has raised odds of the central bank cutting rates. Powell, whose term ends in May, was also interpreted as being more dovish this week in testimony to U.S. Congress, adding to expectation of more rate cuts. Traders are now pricing in 64 basis points of easing this year versus 46 bps expected on Friday. "The sooner a replacement is announced for Powell, the sooner he could be perceived to be a 'lame duck'," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. The Wall Street Journal reported on Wednesday that Trump has toyed with the idea of selecting and announcing Powell's replacement by September or October, a move analysts say could lead to the person operating as a shadow Fed chair, undermining Powell's influence. Trump has not decided on a replacement for Powell and a decision is not imminent, a person familiar with the White House's deliberations told Reuters on Thursday. "Such an outcome could introduce some volatility into financial markets if the nominee makes public comments markedly different to the current chair," CBA's Kong said. "For now, expectations President Trump will choose a more dovish chair will keep downward pressure on FOMC pricing and the USD." The euro was steady at $1.1693 in early trading after hitting $1.1745 in the previous session, its highest since September 2021. Sterling last fetched $1.3733, just below the October 2021 top of $1.37701 touched on Thursday. The dollar index, which measures the U.S. unit versus six other currencies, was lingering near its lowest since March 2022 at 97.378, on course for a 2% decline in June, its sixth straight month in the red. The index has dropped more than 10% this year as Trump's tariffs stoke U.S. growth worries, leading investors to look for alternatives. The yen was a bit weaker at 144.73 per dollar, while the Swiss franc was last at 0.8013 per dollar, perched near its strongest level in a decade. Investor attention will also be on progress on trade deals ahead of the July 9 deadline for Trump's "reciprocal" tariffs as nations scramble to get an agreement over the line with the clock ticking. German Chancellor Friedrich Merz said on Thursday the EU should do a "quick and simple" trade deal with the United States rather than a "slow and complicated" one. A White House official said on Thursday the U.S. has reached an agreement with China on how to expedite rare earths shipments to the United States.
