The One, Big, Beautiful Bill (OBBB) has a significant effect on federal taxes, credits and deductions. Millions of taxpayers reported earning tips and overtime on their tax returns, many of them are veterans and people working in lower wage jobs. This relief will impact most of these taxpayers and they can start taking advantage of the deduction this filing season.
No tax on tips
Both employees and self-employed individuals may deduct qualified tips received in certain qualified occupations, such as wait staff, bartenders, salon workers, personal trainers, gig economy workers, and many more who customarily and regularly receive tips might qualify.
You may be able to claim a deduction for qualified tips paid to you in 2025 that are included on Form W-2, Form 1099-NEC, Form 1099-MISC, Form 1099-K, or reported directly by you on Form 4137.
- “Qualified tips” are voluntary cash or charged tips received from customers or through tip sharing
- Maximum annual deduction is $25,000; for self-employed, deduction may not exceed individual’s net income, without regard to this deduction, from the trade or business in which the tips were earned
- The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers)
No tax on overtime
If you receive qualified overtime compensation, you may deduct the pay that exceeds your regular rate of pay, generally the “half” portion of the “time-and-a-half” compensation that’s required by the Fair Labor Standards Act.
- Maximum annual deduction is $12,500 ($25,000 for joint filers)
- Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers)
- The deduction is available for both itemizing and non-itemizing taxpayers
This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.