“Did you know?” #20

DID YOU KNOW the One Big Beautiful Bill Act (P.L.119-21) created some temporary new deductions that begin during this tax year?

“No Tax on Tips” deduction will be allowed from 2025 to 2028. The maximum deduction allowed per return is $25,000 for QUALIFIED tips. The tips must be reported as income to be deductible. If you are married, you must file jointly to claim this.  Importantly, this is only allowed for income where tips were “customarily and regularly received” before 2025; there’s a list of 68 eligible professions at 90 Fed. Reg. 45,340. Service charges and commissions are not considered qualified tips.

A “No Tax on Overtime” deduction will also be allowed from 2025 to 2028. The maximum deduction allowed per person on qualified overtime is $12,500 single/$25,000 married filing jointly. If you are married, you must file jointly to claim this as well. Importantly, this is only allowed for overtime that qualifies under the FLSA (over 40 hours per week). For example, if your employer pays overtime after you’ve exceeded 8 hours per day but you don’t work over 40 hours per week, that overtime does not qualify. Also, this deduction only applies to the “premium” paid for overtime, not the base pay. For example, if your hourly wage is $10 per hour and your overtime pay is $15 per hour, the extra $5 is the only part that is deductible.

Both of these deductions are subject to income limitations of $150,000 for singles and $300,000 for married filing jointly.