The IRS has announced new guidelines related to the tax provisions in the recently passed One Big Beautiful Bill Act (OBBBA). Signed into law by former President Donald Trump in July, this legislation brings benefits for workers, specifically addressing tips and overtime pay for the 2025 tax year.
Under the new law, workers can benefit from provisions that allow them to exclude certain amounts of their income from taxation. Specifically, the “no tax on tips” and “no tax on overtime” measures are designed to help those in service-based jobs and those who work extra hours. The IRS is now providing guidance to make it easier for eligible workers to take advantage of these deductions.
For workers earning tips, they can deduct up to $25,000 in tips if their modified adjusted gross income is $150,000 or less. For couples filing jointly, this threshold rises to $300,000. This deduction is available for tax years running from 2025 through 2028, and there are about six million workers in the U.S. who report earnings from tips.
Moreover, the overtime provision allows workers to deduct overtime earnings that exceed their standard pay rates, particularly the additional pay for hours worked beyond 40 hours a week. The maximum amount that can be deducted here is $12,500 for individual filers and $25,000 for joint filers, with the same income limits applying as with the tip deductions.
It’s important to note that not all workers qualify for overtime payment protections, specifically those who are salaried and earn at least $1,128 weekly. The IRS is also working on updating tax forms and instructions to assist taxpayers in making these claims during the upcoming filing season, which typically begins in late January.
This legislative move is seen as a positive step for many hard-working Americans who rely on tips and overtime pay to make ends meet. Keeping more of their earnings enables them to support their families better, reinforcing the idea that conservative policies prioritize individual workers and their financial freedom.
