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Time of India
4 days ago
- Business
- Time of India
No taxes on overtime or tips? What the new proposal could mean for your paycheck
No tax on overtime pay 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 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 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 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 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 IRS will give more instructions about how to report this soon. Employers are told to work with accountants or payroll experts to track overtime 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 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 jobs can't use the tip deduction, even if they get 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 says this is just general information — not legal or tax advice. Before doing anything, you should talk to a real tax or accounting 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 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.
Los Angeles Times
11-07-2025
- Business
- Los Angeles Times
What to know -- and what isn't known yet -- about tax deductions for tips and overtime pay
Millions of U.S. workers who earn tips and overtime pay may be eligible for a federal tax break when they file their 2025 income taxes next year. But which workers will qualify for the new deductions is among the details the government has to work out after President Donald Trump's signature spending and policy package won final congressional approval. Under the bill Trump signed into law on July 4, the U.S. Treasury Department must publish a list by Oct. 2 of occupations that qualify for tax-free tips. The department is also expected to publish guidance on how to report tips and overtime pay, and what documentation will be required. The deduction provisions are not permanent but were written to expire after the 2028 tax year. Overtime pay isn't currently separated out on an employee's W-2 tax form, for example, but employers generally keep track of it and itemize it on employees' pay stubs, said Miguel Burgos, a certified public accountant with TurboTax. Employers should continue to withhold taxes while waiting for guidance, Burgos said. The bill doesn't apply to state and local taxes or to federal payroll taxes, which help fund Social Security and Medicare. Here's what we know about tax-free tips and overtime: The bill says eligible workers are those who already regularly received tips before December 2024. In the restaurant industry alone, there are 2.1 million tipped servers and bartenders, according to the National Restaurant Association. Barbers, hairdressers, nail technicians and delivery drivers are also expected to be included. Workers must include a Social Security number when they file their taxes to be eligible, and a spouse's Social Security number if they're married and filing jointly. Workers will be able to deduct up to $25,000 in tips if they make less than $150,000 (or $300,000 if they're married and filing jointly). The amount workers can deduct is reduced by $100 for every $1,000 they make over $150,000. The change will not affect around 40% of tipped workers since they already pay little to no income tax, according to the nonpartisan Tax Policy Center. The other 60% of tipped workers are expected to see an average tax cut of $1,800 per year. Both cash tips and credit cards are included. Tips pooled together and then distributed to a restaurant's employees are also included, although servers may be less inclined to participate in tip pooling now that they are eligible for a tax deduction. Service charges – such as an automatic gratuity for a large party – aren't included because the bill makes clear that eligible tips must be 'paid voluntarily.' The Budget Lab at Yale estimates that 8% of U.S. hourly workers and 4% of salaried workers are regularly paid overtime under the Fair Labor Standards Act, which requires overtime pay of at least time and a half once employees have worked 40 hours in a week. People working in many jobs, including clergy, teachers and executives, are exempt from federal overtime rules. Workers can deduct up to $12,500 in overtime (or up to $25,000 in a joint return). Like the tip measure, the amount workers can deduct is reduced if they make more than $150,000. And they must include a Social Security number when they file. The average worker is expected to see a tax cut of between $1,400 and $1,750 per year, according to the White House Council of Economic Advisers. According to an analysis by the nonpartisan Joint Committee on Taxation, tax-free tips would reduce federal revenue by $31 billion between the 2026 and 2029 fiscal years, while tax-free overtime would reduce federal revenue by $90 billion during the same period. Durbin writes for the Associated Press.
10-07-2025
- Business
What to know -- and what isn't known yet -- about US tax deductions for tips and overtime pay
Millions of U.S. workers who earn tips and overtime pay may be eligible for a federal tax break when they file their 2025 income taxes next year. But which workers will qualify for the new deductions is among the details the government has to work out after President Donald Trump's signature spending and policy package won final congressional approval. Under the bill Trump signed into law on July 4, the U.S. Treasury Department must publish a list by Oct. 2 of occupations that qualify for tax-free tips. The department is also expected to publish guidance on how to report tips and overtime pay, and what documentation will be required. The deduction provisions are not permanent but were written to expire after the 2028 tax year. Overtime pay isn't currently separated out on an employee's W-2 tax form, for example, but employers generally keep track of it and itemize it on employees' pay stubs, said Miguel Burgos, a certified public accountant with TurboTax. Employers should continue to withhold taxes while waiting for guidance, Burgos said. The bill doesn't apply to state and local taxes or to federal payroll taxes, which help fund Social Security and Medicare. Here's what we know about tax-free tips and overtime: The bill says eligible workers are those who already regularly received tips before December 2024. In the restaurant industry alone, there are 2.1 million tipped servers and bartenders, according to the National Restaurant Association. Barbers, hairdressers, nail technicians and delivery drivers are also expected to be included. Workers must include a Social Security number when they file their taxes to be eligible, and a spouse's Social Security number if they're married and filing jointly. Workers will be able to deduct up to $25,000 in tips if they make less than $150,000 (or $300,000 if they're married and filing jointly). The amount workers can deduct is reduced by $100 for every $1,000 they make over $150,000. The change will not affect around 40% of tipped workers since they already pay little to no income tax, according to the nonpartisan Tax Policy Center. The other 60% of tipped workers are expected to see an average tax cut of $1,800 per year. Both cash tips and credit cards are included. Tips pooled together and then distributed to a restaurant's employees are also included, although servers may be less inclined to participate in tip pooling now that they are eligible for a tax deduction. Service charges – such as an automatic gratuity for a large party – aren't included because the bill makes clear that eligible tips must be 'paid voluntarily.' The Budget Lab at Yale estimates that 8% of U.S. hourly workers and 4% of salaried workers are regularly paid overtime under the Fair Labor Standards Act, which requires overtime pay of at least time and a half once employees have worked 40 hours in a week. People working in many jobs, including clergy, teachers and executives, are exempt from federal overtime rules. Workers can deduct up to $12,500 in overtime (or up to $25,000 in a joint return). Like the tip measure, the amount workers can deduct is reduced if they make more than $150,000. And they must include a Social Security number when they file. The average worker is expected to see a tax cut of between $1,400 and $1,750 per year, according to the White House Council of Economic Advisers. According to an analysis by the nonpartisan Joint Committee on Taxation, tax-free tips would reduce federal revenue by $31 billion between the 2026 and 2029 fiscal years, while tax-free overtime would reduce federal revenue by $90 billion during the same period.
Chicago Tribune
10-07-2025
- Business
- Chicago Tribune
What to know — and what isn't known yet — about US tax deductions for tips and overtime pay
Millions of U.S. workers who earn tips and overtime pay may be eligible for a federal tax break when they file their 2025 income taxes next year. But which workers will qualify for the new deductions is among the details the government has to work out after President Donald Trump's signature spending and policy package won final congressional approval. Under the bill Trump signed into law on July 4, the U.S. Treasury Department must publish a list by Oct. 2 of occupations that qualify for tax-free tips. The department is also expected to publish guidance on how to report tips and overtime pay, and what documentation will be required. The deduction provisions are not permanent but were written to expire after the 2028 tax year. Overtime pay isn't currently separated out on an employee's W-2 tax form, for example, but employers generally keep track of it and itemize it on employees' pay stubs, said Miguel Burgos, a certified public accountant with TurboTax. Employers should continue to withhold taxes while waiting for guidance, Burgos said. The bill doesn't apply to state and local taxes or to federal payroll taxes, which help fund Social Security and Medicare. Here's what we know about tax-free tips and overtime: The bill says eligible workers are those who already regularly received tips before December 2024. In the restaurant industry alone, there are 2.1 million tipped servers and bartenders, according to the National Restaurant Association. Barbers, hairdressers, nail technicians and delivery drivers are also expected to be included. Workers must include a Social Security number when they file their taxes to be eligible, and a spouse's Social Security number if they're married and filing jointly. Workers will be able to deduct up to $25,000 in tips if they make less than $150,000 (or $300,000 if they're married and filing jointly). The amount workers can deduct is reduced by $100 for every $1,000 they make over $150,000. The change will not affect around 40% of tipped workers since they already pay little to no income tax, according to the nonpartisan Tax Policy Center. The other 60% of tipped workers are expected to see an average tax cut of $1,800 per year. Both cash tips and credit cards are included. Tips pooled together and then distributed to a restaurant's employees are also included, although servers may be less inclined to participate in tip pooling now that they are eligible for a tax deduction. Service charges – such as an automatic gratuity for a large party – aren't included because the bill makes clear that eligible tips must be 'paid voluntarily.' The Budget Lab at Yale estimates that 8% of U.S. hourly workers and 4% of salaried workers are regularly paid overtime under the Fair Labor Standards Act, which requires overtime pay of at least time and a half once employees have worked 40 hours in a week. People working in many jobs, including clergy, teachers and executives, are exempt from federal overtime rules. Workers can deduct up to $12,500 in overtime (or up to $25,000 in a joint return). Like the tip measure, the amount workers can deduct is reduced if they make more than $150,000. And they must include a Social Security number when they file. The average worker is expected to see a tax cut of between $1,400 and $1,750 per year, according to the White House Council of Economic Advisers. According to an analysis by the nonpartisan Joint Committee on Taxation, tax-free tips would reduce federal revenue by $31 billion between the 2026 and 2029 fiscal years, while tax-free overtime would reduce federal revenue by $90 billion during the same period.
Yahoo
10-07-2025
- Business
- Yahoo
What to know -- and what isn't known yet -- about US tax deductions for tips and overtime pay
Millions of U.S. workers who earn tips and overtime pay may be eligible for a federal tax break when they file their 2025 income taxes next year. But which workers will qualify for the new deductions is among the details the government has to work out after President Donald Trump's signature spending and policy package won final congressional approval. Under the bill Trump signed into law on July 4, the U.S. Treasury Department must publish a list by Oct. 2 of occupations that qualify for tax-free tips. The department is also expected to publish guidance on how to report tips and overtime pay, and what documentation will be required. The deduction provisions are not permanent but were written to expire after the 2028 tax year. Overtime pay isn't currently separated out on an employee's W-2 tax form, for example, but employers generally keep track of it and itemize it on employees' pay stubs, said Miguel Burgos, a certified public accountant with TurboTax. Employers should continue to withhold taxes while waiting for guidance, Burgos said. The bill doesn't apply to state and local taxes or to federal payroll taxes, which help fund Social Security and Medicare. Here's what we know about tax-free tips and overtime: Who is expected to qualify for tax-free tips? The bill says eligible workers are those who already regularly received tips before December 2024. In the restaurant industry alone, there are 2.1 million tipped servers and bartenders, according to the National Restaurant Association. Barbers, hairdressers, nail technicians and delivery drivers are also expected to be included. Workers must include a Social Security number when they file their taxes to be eligible, and a spouse's Social Security number if they're married and filing jointly. How much will eligible workers be able to deduct? Workers will be able to deduct up to $25,000 in tips if they make less than $150,000 (or $300,000 if they're married and filing jointly). The amount workers can deduct is reduced by $100 for every $1,000 they make over $150,000. Who will see the most benefit from not paying federal taxes on tips? The change will not affect around 40% of tipped workers since they already pay little to no income tax, according to the nonpartisan Tax Policy Center. The other 60% of tipped workers are expected to see an average tax cut of $1,800 per year. What kinds of tips will be counted? Both cash tips and credit cards are included. Tips pooled together and then distributed to a restaurant's employees are also included, although servers may be less inclined to participate in tip pooling now that they are eligible for a tax deduction. Service charges – such as an automatic gratuity for a large party – aren't included because the bill makes clear that eligible tips must be 'paid voluntarily.' Who will be eligible for tax-free overtime? The Budget Lab at Yale estimates that 8% of U.S. hourly workers and 4% of salaried workers are regularly paid overtime under the Fair Labor Standards Act, which requires overtime pay of at least time and a half once employees have worked 40 hours in a week. People working in many jobs, including clergy, teachers and executives, are exempt from federal overtime rules. How much in overtime can workers deduct from their federal taxes? Workers can deduct up to $12,500 in overtime (or up to $25,000 in a joint return). Like the tip measure, the amount workers can deduct is reduced if they make more than $150,000. And they must include a Social Security number when they file. How much of a tax cut is an overtime deduction likely to yield? The average worker is expected to see a tax cut of between $1,400 and $1,750 per year, according to the White House Council of Economic Advisers. According to an analysis by the nonpartisan Joint Committee on Taxation, tax-free tips would reduce federal revenue by $31 billion between the 2026 and 2029 fiscal years, while tax-free overtime would reduce federal revenue by $90 billion during the same period.
