Individuals who received tips or overtime during tax year 2025

No Tax on Tips

Under the One, Big, Beautiful Bill, workers may be eligible for new deductions for tax years 2025 through 2028 if they received qualified tips. For tipped workers, the maximum annual deduction is $25,000, which phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

It is estimated that there are about 6 million workers who report tipped wages.

No Tax on Overtime

For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.

•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.

(Source of quote)
IR-2025-114, Nov. 21, 2025