No taxes on overtime or tips? What the new proposal could mean for your paycheck
Live Events
How employers must report overtime
No tax on tips
Who can't use the tip deduction
Law
Medicine
Accounting
Consulting
Finance
Performing arts
Athletics
Investing
Stock trading
Any job based mainly on the person's skill or fame
How employers must report tips
FAQs
(You can now subscribe to our
(You can now subscribe to our Economic Times WhatsApp channel
A new law called the One Big Beautiful Bill Act (OBBBA) was passed. It helps former President Trump fulfill two campaign promises: No taxes on overtime and No taxes on tips . These tax breaks start from January 2025 and end after 2028. This law affects both workers and business owners, as per the reports.You don't have to pay income tax on some of your overtime money. You can deduct up to $12,500 if you're single, or $25,000 if you file taxes as a couple. If you earn more than $150,000 (single) or $300,000 (married), this benefit goes away, as per the report by NAHB.You don't have to do itemized deductions to get this — it's automatic. This only works on extra money you earn from overtime, not your regular pay. Example: If your normal pay is $20/hour and you earn $30/hour for overtime, only the extra $10/hour counts for the tax break, as per the reports.Only legal overtime under federal law (over 40 hours/week) is allowed. Overtime paid through contracts or state law doesn't count unless it also follows federal rules. You still pay Social Security and Medicare taxes on overtime pay, as stated by the NAHB report.Employers must show the overtime amount separately on your W-2 form. Right now, overtime and regular pay are combined on W-2, but this will change in 2025. For 2025, employers can use a 'reasonable guess' to separate regular and overtime pay while adjusting to the new rule, as per the reports.The IRS will give more instructions about how to report this soon. Employers are told to work with accountants or payroll experts to track overtime correctly.Workers who get tips can also avoid paying income tax on some of their tip money. You can deduct up to $25,000 in tips from your taxable income. This benefit also phases out if you earn over $150,000 (single) or $300,000 (married). You don't need to itemize to get the tip deduction — it's automatic, as stated by the NAHB report.To qualify, you must work in a job that normally gets tips, like waiters, repair workers, etc. The Treasury Department will release a list of approved 'tipped jobs' by around October 2025. Tips must be given freely by the customer — mandatory service charges don't count, as per the reports.Some jobs can't use the tip deduction, even if they get tips.These include people working inTips will also need to be reported separately on your W-2 form. In 2025, employers can use a reasonable method to estimate tip amounts while the system updates. Just like overtime, you still pay Social Security and Medicare taxes on tips, as mentioned by the NAHB report.NAHB says this is just general information — not legal or tax advice. Before doing anything, you should talk to a real tax or accounting expert.No, under the OBBBA law, qualified workers can deduct up to $12,500 (single) or $25,000 (married) of overtime pay from their taxable income starting in 2025.Tips are still subject to payroll taxes, but eligible workers can deduct up to $25,000 in tip income from federal income tax under the new OBBBA law.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Hindu
16 minutes ago
- The Hindu
'Balanced', 'forward-looking': Pakistan hails 19% tariffs under U.S. trade deal
Pakistan on Friday (August 1, 2025) announced that the U.S. has imposed a 19% tariff on its exports and termed the step as a "balanced and forward-looking" move that enhances the country's competitiveness in the American market. The new rate is down from the previous 29% tariff announced by U.S. President Donald Trump. Welcoming the "successful conclusion" of the tariff-related discussions with the U.S., the Ministry of Foreign Affairs in a statement said, 'As per the outcome of these talks, a tariff of 19% will be applicable for Pakistani exports to the U.S. market.' The decision reflected a 'balanced and forward-looking approach by the U.S. authorities, keeping Pakistan competitive relative to other South and Southeast Asian countries', it said. The Ministry said the revised tariff level is expected to support Pakistan's export potential, especially in key sectors such as textiles, "which remain the backbone of the country's export economy'. Pakistan's exports to the U.S. rose by 11.06% to $5.552 billion from $4.999 billion in the first 11 months of the last fiscal. The Ministry said the current tariff presented a 'significant opportunity to expand Pakistan's footprint in the U.S. market'. 'It is now essential for Pakistani exporters and trade bodies to adopt an aggressive and focused marketing strategy to capitalise on this development,' it said. The statement also pointed out a substantial potential for growth in other sectors. 'The Government of Pakistan looks forward to further positive engagements and close cooperation with the United States in the areas of investment, artificial intelligence, crypto currency, mines and minerals, energy, and other emerging sectors," it said. The Ministry said Pakistan will continue to engage closely with Mr. Trump and the U.S. administration to promote the shared goals of economic development and mutual prosperity. The revised tariff for Pakistan came after the U.S. and Islamabad finalised a trade deal in Washington on Wednesday. In a social media post on Wednesday, the U.S. President said, 'We have just concluded a deal with the country of Pakistan, whereby Pakistan and the United States will work together on developing their massive oil reserves.' However, it was not immediately clear what massive oil reserves in Pakistan Mr. Trump was referring to. Meanwhile, Khurram Schehzad, Adviser to Pakistan's Finance Minister, in a social media post said, 'Pakistan is possibly the only country which the U.S. has offered its investments as well, besides a competitive trade deal.' The 'deal signals a strategic deepening of economic ties and shared growth', he said. Pakistan has long claimed to have large oil deposits along its coast, but no progress has been made to tap those deposits. It has been trying to lure in investments to tap into these reserves. The country currently imports oil from West Asia to meet its energy demands. Mr. Trump on Thursday signed an executive order that raised tariffs for over five dozen countries with Washington's negotiations for trade deals went down to the wire ahead of the August 1 deadline. The tariffs in the list range from 10% to 40%, with Japan being charged 15%, Laos and Myanmar (40% each), Sri Lanka (20%) and the United Kingdom (10%).
&w=3840&q=100)
First Post
16 minutes ago
- First Post
‘Just in case these foolish statements are...': Trump orders nuclear sub deployment after Medvedev's 'provocative' remarks
'Based on the highly provocative statements of the Former President of Russia, Dmitry Medvedev…, I have ordered two Nuclear Submarines to be positioned in the appropriate regions, just in case these foolish and inflammatory statements are more than just that,' Trump posted on Truth Social read more A day after former Russian President Dmitry Medvedev warned US President Donald Trump about Moscow's Soviet-era nuclear strike capabilities following Trump's remark telling him to 'watch his words', the US President on Friday said he had ordered the deployment of two nuclear submarines in response to what he called 'highly provocative' comments by the Russian leader. 'Based on the highly provocative statements of the Former President of Russia, Dmitry Medvedev, who is now the Deputy Chairman of the Security Council of the Russian Federation, I have ordered two Nuclear Submarines to be positioned in the appropriate regions, just in case these foolish and inflammatory statements are more than just that,' Trump posted on his Truth Social platform. STORY CONTINUES BELOW THIS AD 'Words are very important, and can often lead to unintended consequences, I hope this will not be one of those instances,' he added. Trump did not clarify the exact location or nature—nuclear-powered or nuclear-armed—of the submarines he said were deployed in response to remarks by former Russian President Dmitry Medvedev. The escalating exchange between the two leaders began after Trump labelled Medvedev the 'failed former President of Russia.' Trump, after announcing a new tariff on India and a penalty for its trade relations with Russia, said, 'I don't care what India does with Russia. They can take their dead economies down together, for all I care. We have done very little business with India, their Tariffs are too high, among the highest in the World.' He added, 'Likewise, Russia and the USA do almost no business together. Let's keep it that way, and tell Medvedev, the failed former President of Russia, who thinks he's still President, to watch his words. He's entering very dangerous territory!' Medvedev responded on Thursday via Telegram, writing, 'If a few words from the former president of Russia can provoke such a jittery reaction from the mighty president of the United States, then Russia must be completely in the right.' 'We'll keep moving forward on our own path,' Reuters quoted him as saying. STORY CONTINUES BELOW THIS AD Mocking Trump's 'dead economies' remark, Medvedev referenced Russia's Cold War-era nuclear deterrent system: 'As for 'dead economies' and 'dangerous territory,' maybe he should rewatch his favorite zombie movies and remember just how dangerous the so-called 'Dead Hand,' which doesn't even exist, can be.' While Trump did not specify what exactly triggered his nuclear warning, Medvedev had earlier in the week criticised Trump's push for more sanctions, accusing him of escalating tensions. 'Each new ultimatum is a threat and a step towards war. Not between Russia and Ukraine, but with his own country,' Medvedev wrote on X. With inputs from agencies
Mint
21 minutes ago
- Mint
Global stock index sinks with dollar, bond yields after weak US jobs data
By Sinéad Carew and Samuel Indyk NEW YORK/LONDON -MSCI's global equities index fell on Friday and the dollar took a dive after weaker than expected U.S. jobs data ramped up expectations for Federal Reserve rate cuts in September as investors also considered U.S. President Donald Trump's latest tariff announcements. U.S. Treasury yield moved sharply lower after the Labor Department reported that the U.S. economy added 73,000 nonfarm payrolls last month, below the 110,000 expected by economists surveyed by Reuters. July unemployment rose up to 4.2%. June's job growth was revised sharply lower to 14,000 from 147,000. After the data, traders were betting on a 69% probability for a September rate cut compared with 37.7% on Thursday, according to CME Group's FedWatch tool. "The market is reacting to the possibility of the economy flipping into recession. The weak jobs data is piling on to weak earnings reports and weak guidance from some corporations," said Luke Tilley, Chief Economist, Wilmington Trust. But Tilley said perspective is also important when looking at Friday's moves since the market has risen sharply since around mid-April when Trump announced tariff pauses. Investors may be "repositioning around what had been a really strong run and just taking some chips off the table in light of this morning's data," he said. On Wall Street at 11:32 a.m. the Dow Jones Industrial Average fell 640.77 points, or 1.46%, to 43,488.20, the S&P 500 fell 105.82 points, or 1.66%, to 6,233.84 and the Nasdaq Composite fell 459.00 points, or 2.17%, to 20,663.45. The pan-European STOXX 600 index fell 1.81%, suggesting its biggest daily drop since April 9. MSCI's gauge of stocks across the globe fell 12.34 points, or 1.33%, to 917.28, putting it on track for its biggest daily drop since mid-April. The softer data added to losses for the global index , which was already losing ground after a host of tariff announcements from Trump the day before. Trump ordered tariffs ranging from 10% to 41% on U.S. imports from several major trading partners. He increased duties on Canadian goods to 35% from 25% for all products not covered by the U.S.-Mexico-Canada trade agreement. He said a 25% rate for India's U.S.-bound exports, 20% for Taiwan's, 19% for Thailand's and 15% for South Korea's. However, Mexico got a 90-day reprieve from higher tariffs to allow for deal talks. In currencies, the greenback reversed course to fall sharply after the data due to increased expectations for rate cuts. Earlier it had found support in fading hopes for U.S. rate cuts. The dollar index <=USD>, which measures the greenback against a basket of currencies including the yen and the euro, fell 1% to 99.03. The euro was up 1.11% at $1.1542 while against the Japanese yen , the dollar weakened 1.76% to 148.08. The Bank of Japan held interest rates steady on Thursday and revised up its near-term inflation expectations, but Governor Kazuo Ueda sounded a little dovish in the press conference. Sterling strengthened 0.32% to $1.3247 and the Canadian dollar strengthened 0.44% versus the greenback to C$1.38 per dollar. U.S. Treasury yields plunged after the jobs data and the increase in bets that the Fed will resume interest rate cuts in September. The yield on benchmark U.S. 10-year notes fell 11.9 basis points to 4.241%, from 4.36% late on Thursday while the 30-year bond yield fell 6.6 basis points to 4.8191%. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 21.6 basis points to 3.733%, from 3.951% late on Thursday. In energy markets, oil prices fell more than 2% after the jobs data and on the prospects of a possible increase in production by OPEC and its allies. Oil had settled 1% lower on Thursday. U.S. crude fell 2.66% to $67.42 a barrel and Brent fell to $69.72 per barrel, down 2.76% on the day. Elsewhere, gold prices rallied to a one-week high, after the weak jobs report boosted policy easing expectations and fresh tariff announcements also spurred safe-haven demand. Spot gold rose 1.83% to $3,350.10 an ounce.
