The Department of the Treasury and the Internal Revenue Service today issued guidance for workers eligible to claim the deduction for tips and for overtime compensation for tax year 2025. The IRS had previously announced that, for tax year 2025, employers will not face penalties for failing to separately report qualified overtime compensation. The One, Big, Beautiful Bill Act (OBBBA) specifically allows eligible employees to deduct a certain amount of qualifying overtime pay from their federal taxable income for 2025-2028 tax years.
The guidance clarifies for workers how to determine the amount of their deduction without receiving a separate accounting from their employer for cash tips or qualified overtime on information returns such as Form W-2 or Form 1099, as those forms remain unchanged for the current tax year. It also specifies who is exempt and provides specific practical examples illustrating situations that workers who receive qualified overtime might encounter.
For more information, contact Claiborne Guy at claiborne.guy@agc.org.