Weekly OBBBA Spotlight, Week 4: New Deductions for Tips & Overtime Pay

Jan 27
2 min read

New for 2025: "No Tax on Tips" and "No Tax on Overtime" Deductions

The One Big, Beautiful Bill Act (OBBBA) delivered unique new tax-saving opportunities for workers in 2025 and beyond—especially if you earn income from tips or overtime. Here’s what you need to know about these powerful deductions.

1. “No Tax on Tips” Deduction

Who qualifies?

Individuals who receive cash tips in an occupation that was customarily and regularly tipped as of December 31, 2024 (e.g., servers, bartenders, hair stylists, bellhops, etc.).

How much can you deduct?

Up to $25,000 per year in qualified tips received and reported on a Form W-2, 1099, or Form 4137, or as otherwise properly documented.
The deduction is available even if you do NOT itemize deductions.

Phaseout:

Deduction is reduced by $100 for every $1,000 your adjusted gross income (AGI) exceeds $150,000 ($300,000 for joint filers).

Documentation:

You must have proper documentation of your tips (W-2, 1099, or Form 4137) and your occupation must be on the IRS’s approved list of customarily tipped jobs.

Special notes:

Married Filing Separately filers are not eligible.
Additional requirements apply for self-employed individuals and employees of specified service trades or businesses.

2. “No Tax on Overtime” Deduction

Who qualifies?

Any employee who receives qualified overtime compensation (generally the “half” portion of “time-and-a-half” pay required by the Fair Labor Standards Act, as reported by your employer).

How much can you deduct?

Up to $12,500 per year in qualified overtime pay (or $25,000 for joint filers).

Phaseout:

Deduction is reduced by $100 for every $1,000 your AGI exceeds $150,000 ($300,000 for joint filers).

Documentation:

Overtime must be reported on your W-2 (box detail or supplemental statement) or a specified equivalent for non-employees.

Special notes:

Available even if you do NOT itemize deductions.
Married Filing Separately filers are not eligible.

Practical Tips

Gather Documentation: Make sure your year-end W-2, 1099, or Form 4137 clearly separates your tips and overtime—incorrect or missing information may disqualify the deduction.
Monitor Your AGI: If you’re near the phaseout threshold, timing other deductions or income may help preserve your eligibility.
File Early: These deductions are new and may require additional documentation—submit your information to us as early as possible to avoid delays.