07/28/2025
You may have seen headlines about the “No Tax on Tips” and “No Tax on Overtime” provisions in the Big Beautiful Bill (BBB). We want to clarify how these changes work and what they mean for you:
Tax will still be withheld on your Paychecks.
Your employer will continue to withhold tax on your tips and overtime pay just like before. This is because despite the titles “No Tax on Tips” and “No Tax on Overtime”, there are exceptions, including income limits.
You get the tax benefit when you file your tax return.
The BBB allows you to deduct up to $25,000 in tips and $12,500 in overtime ($25,000 if married) per year in qualified tips and overtime pay on your federal tax return. This means you will get the benefit when you file your taxes, reducing your taxable income and your overall tax bill. For with a lot of tips or overtime, this could lead to larger than normal tax refunds.
What You Should Know
• Keep good records of your tips and overtime hours to ensure you receive the full deduction. Your final paystub of the year will be a good source for this information.
• Don’t believe everything you read online. This bill was just signed and there is a lot of incorrect information floating around. While the basics are out there, we must now wait for the IRS to “interpret” these provisions and issue publications with the final rules. It will be months before this is completed.
• There are income limits to both new laws. Individuals making $150,000 per year or couples making over $300,000 per year will see the deductions reduced or eliminated.
• Congress has historically passed amendments to large bills after they are signed into law, so everything we know now is subject to change in the coming months.
