07/08/2025
Our understanding of the One Big Beautiful Bill Act "No Tax on Tips or Overtime".
Typically, tips and overtime pay are considered wages and are subject to payroll taxes, including F**A (Social Security and Medicare).
However, the new Mega-Bill provides a federal income tax break for eligible workers who meet certain income guidelines. Specifically, for tax years 2025 through 2028:
Workers can deduct up to $12,500 of their overtime pay from their federal taxable income (or $25,000 if filing jointly).
Workers can also deduct up to $25,000 of qualified tips from their federal taxable income.
Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). This is just one of many other rules and regulations associated with these deduction
It's important to note that this deduction applies only to federal income taxes. Tips and overtime are still subject to payroll taxes, including Social Security and Medicare.
I hope this information is helpful. Hopefully, by the end of the year, tax professionals will have a clearer understanding of the final details and implementation of these new tax laws.
Disclaimer: This summary is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws and regulations are subject to change, and their application may vary based on individual circumstances. Consult a qualified tax professional regarding your specific situation.