The new year will bring a host of tax benefits that Americans can take advantage of when they file their taxes in a few weeks.
THE IRS has released its guidance regarding the “no tax on tips” and “no tax on overtime” provisions of the One Big Beautiful Bill Act (OBBBA), for workers who can claim the deductions for the 2025 tax year.
President Donald Trump signed the OBBBA in July after Republican majorities in Congress passed the tax reform and spending bill in a party-line vote this summer.
The law included “no tax on tips” and “no tax on overtime,” and the Treasury Department and IRS now provide guidance under the law to help workers determine their deductions.
The IRS notice states that taxpayers eligible for tip and overtime deductions may need to determine these amounts separately this year because Forms W-2 and 1099 will not be updated to include income from tips and overtime for the 2025 tax year.
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The IRS has issued guidance regarding new tax deductions covering qualifying income from tips and overtime. (Lindsey Nicholson/UCG/Universal Images Group via Getty Images) / Getty Images)
Taxpayers can view examples in the SRI Tips which illustrate how tips and overtime deductions work based on the declared or undeclared income they received.
Under the OBBBA, workers who receive qualified advice can deduct up to an annual maximum of $25,000 and the deduction is phased out for taxpayers with modified adjusted gross income greater than $150,000 (or $300,000 for joint filers).
The IRS estimates that there are approximately 6 million workers who report tips on their wagesand the tip deduction on income is effective for tax years 2025 through 2028.
Eligible workers can deduct up to $25,000 in tips. (Lindsey Nicholson/UCG/Universal Images Group via Getty Images / Getty Images)
The “no overtime tax” provision allows individuals who receive compensation for qualified overtime to deduct wages that exceed their regular wages – which is generally “one-half” of “time and a half” overtime pay – that is reported on a Form W-2, Form 1099, or other specified return provided.
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The maximum annual deduction is $12,500 (or $25,000 for joint filers) and the deduction is phased out for taxpayers with modified adjusted gross income greater than $150,000 (or $300,000 for joint filers). Notably, the deduction is available to both itemized and non-itemized taxpayers.
THE Fair Labor Standards Act requires most employees to be paid at least the federal minimum wage for all hours worked and to be paid overtime at at least half their regular rate of pay for working more than 40 hours per week.
President Donald Trump has made “no taxes on tips and overtime” a key part of his economic agenda included in the OBBBA. (Win McNamee/Getty Images)
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However, some employees are exempt from overtime rules, such as those who receive wages of at least $1,128 per week or $58,656 per year, or workers in certain job roles.
Additionally, the IRS said it is in the process of updating income tax forms and instructions for taxpayers to use this filing season, which would help them claim these deductions.
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The start date of the filing season for tax year 2025 has not yet been announced, although it has been in late January in recent years.
