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The IRS has released guidance on the “no tax on tips” and “no tax on overtime” provisions of the One Big Beautiful Bill Act (OBBBA), enacted earlier this year. For the 2025 tax year, eligible workers can deduct up to $25,000 in tips and $12,500 (single filers) or $25,000 (joint filers) in overtime pay exceeding regular pay. These deductions phase out for taxpayers with modified adjusted gross income over $150,000 (or $300,000 for joint filers). Taxpayers may need to calculate these amounts separately, as W-2 and 1099 forms won’t initially reflect them. The IRS is updating tax forms and instructions to assist in claiming these deductions, which are available to both itemizing and non-itemizing filers.
