What ‘no tax’ on tips or overtime means for the 2026 tax year

The One Big Beautiful Bill altered the Federal Tax Code as we know it. Title 7 of the bill contains key provisions such as “no tax on tips or overtime.” These “no tax” benefits are implemented in the form of deductions that individuals can take in addition to the standard deduction. As a result, employers must review their payroll systems and educate their employees and HR personnel.

Understanding ‘no tax on tips’

The IRS defines gross income as all acquisition of wealth—hence, when a customer leaves extra funds as a token of their appreciation, employees receiving those funds must pay taxes. Meanwhile, employers must document all income generated as part of their separate tax responsibilities.

Qualified tip wages are defined as any cash, funds left on electronic payment systems, the value of any noncash tip, and tips received from other employees paid out through tip sharing arrangements received by an individual in an occupation that customarily and regularly receives tips. From 2025 to 2028, employees may deduct their qualified tips to reduce their tax bill.

The initial responsibility of reporting tips is on the employee. Employees must report tips received in writing by the 10th of the month after they get the income. For example, an employee who earns tips on January 1, 2026, has until February 10, 2026, to report the additional income to their employer. In sum, the employee has one month plus 10 days after they earned the tip to tell you about it.