Tipped workers and those who earn overtime income got a significant tax break this year. The One Big Beautiful Bill Act now allows a federal tax deduction of up to $25,000 on qualified tips and overtime, a benefit that could dramatically reduce tax bills for people in jobs where they regularly receive tips or for workers who qualify for overtime pay.
This means qualified workers can declare a tax deduction on qualified tips and overtime received in 2025. Under Section 70201 of the OBBBA, the tax deduction will apply from 2025 through 2028.
It’s important to clarify that “tips and OT [overtime] are not ‘tax-free,’ but a federal deduction that has rules,” said Kyle Mostransky, founder and CEO of financial services firm Mostransky and Associates.
“As with many new tax laws, the details matter, and taxpayers will need to understand how this fits into their broader income picture,” added Eric
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