ITR Accounting and Tax

A new rule suggests the deduction of qualified overtime compensation, but that does not mean all overtime pay. The benefit is limited to the overtime portion only.

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IRS releases guidance for tips and overtime deduction

https://www.cnbc.com/amp/2025/11/25/irs-guidance-trump-tips-overtime-deductions.html?fbclid=IwdGRjcAOYIgJjbGNrA5gh6WV4dG4DYWVtAjExAHNydGMGYXBwX2lkDDM1MDY4NTUzMTcyOAABHlDXNBjS8eTGZmugFX4cZwKN-4JXF7zu3t4CmLbNAoBen9l4zm398W5ZffZ-_aem_TN1iNaFvbFPpGnMvevysiw

IRS releases guidance for Trump's tips, overtime deductions. What workers need to know The IRS has released guidance for President Donald Trump's tips and overtime deductions. Here's what workers need to know.

(This Article is shared from Vlad Lapochkin):

Heads-up for everyone in tipped work 🍽️:

The IRS has proposed a new deduction for “qualified tips” starting in 2025. If you’re in an eligible occupation, earn tips (not automatic service charges), and report properly, you could reduce your taxable income.

✅ Eligible Payments: Cash, check, credit/debit cards, gift cards, electronic or mobile payments (Venmo, PayPal), and certain tokens (like casino chips).

⛔️ Ineligible Payments: Event tickets, meals, services, or other assets not exchangeable for a fixed cash amount (including most crypto).

Automatic Gratuities & Fees: Tips added automatically by a business - gratuities, service charges, or other mandatory fees - don’t count unless the customer is clearly given the option to accept, decline, or modify the amount without penalty.

😭 Cap on Deduction: Some Nevada lawmakers requested up to $50,000 for married couples where both spouses earn tips. The Treasury unfortunately rejected this; the annual cap is $25,000 per return, regardless of filing status.

💣 Specified Service Trade or Business (SSTB) Exception:

Certain occupations or business types are excluded. An SSTB is a business in fields like health, law, consulting, athletics, financial services, or the performing arts.

Example 1: A self-employed (1099) comedian performing at a venue receives tips → not eligible because the work falls under SSTB.
Example 2: A W‑2 bartender employed by a non-SSTB company at a theater receives tips → eligible because the employer is non-SSTB and the occupation qualifies.

Final rules may change. Expect refinements after public comments and the end of the government shutdown.

Got questions about tips or taxes? Send me a message - I’ve got you covered!