One Big Beautiful Bill Act – No Tax on Tips and Overtime

NO TAX ON TIPS

See IR 2025-92 

Filing Requirements

• Tips are still subject to Social Security tax and must be reported on the return.
• Married taxpayers must file Married Filing Jointly (MFJ) to claim the deduction.
  • No provision for Married Filing Separately (MFS).

Employer Requirements

• Employers must:
  • File information with the IRS.
  • Furnish a statement to the taxpayer reporting qualifying tips.

Income Limits

• MAGI phase-out applies.
• Maximum deductible tips: $25,000 annually.

Eligible Tips

• Tips must be voluntarily paid by customers.
  • Mandatory or Pooled/Group tips are not eligible.
• The IRS will publish:
  • A list of qualified tips and eligible occupations by October 2, 2025.
  • Federal Register reference:
    https://public-inspection.federalregister.gov/2025-18278.pdf
• Tips will be identified using qualification codes (Reg. 110032-25).

Reporting Forms

• Tips may be reported on:
  • Form W-2
  • Form 1099
  • Form 4137

NO TAX ON OVERTIME 

See IR 2025-114

Reporting

• Overtime compensation may be reported on:
  • W-2
  • 1099
  • Other IRS-specified statements.
• Taxpayers may expect a higher amount than initially calculated, depending on reporting.

Income Limits

• MAGI phase-out applies.
• No provision for Married Filing Separately (MFS).

Annual Deduction Limits (for Tipped Workers)

• $12,500 — Single / Head of Household
• $25,000 — Married Filing Jointly

How Overtime Is Calculated

• The deduction applies only to the ½ portion of overtime pay.
  • Not calculated on time-and-a-half wages.
• Holiday pay does NOT qualify for the overtime deduction.