Update on what we know about no tax on tips and qualifying overtime
On July 4, 2025, as part of Public Law 119-21—aka, the One Big Beautiful Bill Act—Congress enacted above-the-line federal tax deductions that a qualifying employee can claim for their tipped income (up to $25,000 per employee per tax year) and the one-half portion of an employee’s qualifying time and one-half payment for overtime work (up to $12,500 per employee per tax year). These deductions are retroactive to January 1, 2025, and will remain in place through December 31, 2028.
What we now understand better, based on recent IRS guidance, is the following.
Tips
Here’s what you need to know about the Act as it applies to tips:
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