The IRS is issuing new guidance on ‘no tax on tips’ and overtime deductions
Former Reagan economist Art Laffer and former World Bank President David Malpass examine the economy under the Trump administration in ‘Kudlow.’
The new year will bring a number of tax benefits that Americans can take advantage of when they file their taxes in a few weeks.
I The IRS released its guidance on the “no tax on tips” and “no tax overtime” provisions of the One Big Beautiful Bill Act (OBBBA), for workers who can claim the deduction for the 2025 tax year.
The president Donald Trump signed the OBBBA into law in July after the Republican majority in Congress passed a 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 the IRS are now providing guidance since the law was ordered to help workers determine deductions.
The IRS notice said taxpayers who are eligible to claim the deduction and overtime may have to figure those amounts separately this year since Form W-2 and Form 1099 will not be updated to include income from tips and overtime for the 2025 tax year.
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The IRS has released guidance on new tax deductions that include income from tips and overtime. (Lindsey Nicholson/UCG/Universal Images Group via Getty Images) / Getty Images)
Taxpayers can review examples at IRS guidance which shows how imputed income and overtime deductions work based on reported or unreported income they received.
Under the OBBBA, workers who receive suitable tips can deduct up to $25,000 and itemized deductions for taxpayers with adjusted gross income in excess of $150,000 (or $300,000 for joint filers).
IRS estimates are about 6 million workers report tipped wagesand the trust deduction applies to tax years 2025 through 2028.
Eligible employees can deduct up to $25,000 in tips. (Lindsey Nicholson/UCG/Universal Images Group via Getty Images/Getty Images)
The “overtime tax exemption” provision allows people who receive eligible overtime compensation to deduct pay in excess of their regular wages – usually a “half” of the “time and a half” overtime pay – reported on a Form W-2, Form 1099 or other specified statement.
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The maximum annual deduction is $12,500 (or $25,000 for joint filers) and the deductions itemize for taxpayers with adjusted gross income in excess of $150,000 (or $300,000 for joint filers). Notably, the deduction is available to both filing and non-filing taxpayers.
I Fair Labor Standards Act requires most workers to be paid at least the federal minimum wage for all hours worked and overtime pay for at least one-half of their regular rate of pay for work over 40 hours per week.
President Donald Trump did not make a “tax on tips and overtime” a key part of his economic agenda that was included in the OBBBA. (Wina McNamee/Getty Images)
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However, some workers are exempt from overtime rules, such as those paid a salary 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 revising income tax returns and instructions for taxpayers to use this filing season to help them claim these deductions.
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The start date of the filing season for the 2025 tax year has yet to be announced, although it has been in late January in recent years.
