On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, introducing a new above-the-line deduction for qualified tips and overtime pay available to eligible workers from 2025 through 2028.
Tip Deductions
Section 70201 of the OBBBA allows individuals earning up to $150,000 ($300,000 joint) to deduct up to $25,000 in qualified cash tips per year, if paid voluntarily and not subject to negotiation.
To qualify, individuals must work in tip-based jobs as of December 31, 2024. The Treasury Department will publish a list of qualifying occupations within 90 days of the OBBBA’s enactment. Qualified tips must be reported on Form W-2 or 4137 and are still subject to standard IRS reporting requirements. Social Security numbers are required on the tax return.
Overtime Deductions
Section 70202 of the OBBBA provides a new tax deduction for qualified overtime pay, up to $12,500 per year ($25,000 for joint filers), with a phase-out for those earning above $150,000. This deduction must be listed separately on Form W-2 and excludes tips.
Next Steps for Employers
Employers may need to update payroll systems to track and report qualified tips and overtime on employees’ W-2s. Download the bulletin for more details.
