If you’ve been picking up extra shifts, clocking overtime hours, or relying on tips to cover the bills, there’s some welcome news this tax season! New federal deductions for tips and overtime pay could put more money back in your pocket , but navigating these changes requires some preparation.
Understanding the Changes
The One Big Beautiful Bill (OBBBA), signed in July 2025, introduced temporary deductions for qualified tips and overtime pay covering tax years 2025 through 2028.
For tipped workers in eligible occupations, such as servers and baristas, you can now deduct up to $25,000 in qualified tips from your federal taxable income. If you work overtime covered by the Fair Labor Standards Act, you can deduct up to $12,500 as a single filer or $25,000 if filing jointly.
Check the IRS guidance on tip and overtime deductions to verify your occupation qualifies. If you’re married, you should include your Social Security Number and file jointly.
Because the OBBBA bill wasn’t passed until July 2025, employers aren’t required to separately report tips or overtime on your 2025 W-2 forms. This means you’ll need to do some legwork yourself.
Don’t panic—the IRS understands this is a transition period and is providing relief for both workers and employers as everyone adjusts. Starting in 2026, these amounts will be clearly broken out on your tax forms, making the process much simpler.
Keeping track of every tip isn’t always easy, especially when you’re busy. But even rough records can help—check your payment apps, old receipts, or notes on your phone. Many workers who qualify for these deductions can file their taxes at no cost using free tax preparation services. For more information, check out our guide on how to file for free in 2026.
You should also know that these deductions begin phasing out if your modified adjusted gross income exceeds $150,000 for single filers or $300,000 for married couples filing jointly. These deductions apply only to federal income tax.
Getting Help
Take the time to gather your documentation and ask questions when needed. Remember, you don’t have to figure this out alone. Many communities offer free tax preparation assistance through the IRS Volunteer Income Tax Assistance (VITA) program and the Tax Counseling for the Elderly (TCE) program.
For detailed guidance, visit the IRS One Big Beautiful Bill Act page or explore more tax tips in our 2026 Tax Time Guide
