No Tax on Tips & Overtime – OBBBA Edition [Post 41]

The One Big Beautiful Bill Act (OBBBA) was signed on July 4^th and it comes with two major tax deductions aimed at workers earning tips and overtime.

“No Tax on Tips”

If you work a job that regularly receives tips, you might be able to deduct up to $25,000 of those tips from your taxable income. Your job must be on the IRS’s list of “customarily tipped occupations” (to be published by October 2, 2025). This deduction begins to phase out for incomes above $150,000 for singles or $300,000 if married filing jointly.

“No Tax on Overtime”

If you work overtime, you may be able to deduct the pay that exceeds your regular rate of pay (such as the “half” portion of “time-and-a-half”). Max deduction is $12,500 for single filers and $25,000 for joint. This deduction also begins to phase out for incomes above $150,000 for singles or $300,000 if married filing jointly.

Phase Outs

In general, for taxpayers making over $150,000 single or $300,000 joint, the deductions will be reduced by $100 for every $1,000 by which the taxpayer’s MAGI (Modified Adjusted Gross Income) exceeds $150,000 or $300,000.

Bottom Line

If you’re in a tip-based job or frequently work overtime, these new federal tax deduction rules should work in your favor provided you are within the income limits. The IRS will give more guidance later in the year so expect more details to come. These provisions are a rare win for hourly workers.

Works Cited

Internal Revenue Service. “One Big Beautiful Bill Act: Tax Deductions for Working Americans and Seniors.” IRS.gov, July 14, 2025.https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors

U.S. Congress. H.R.1 — One Big Beautiful Bill Act of 2025. 119th Congress (2025).https://www.congress.gov/bill/119th-congress/house-bill/1/text

Image

(Getty/AFP/Alex Wroblewski)