On Nov. 21, 2025, the U.S. Treasury and IRS released new guidance that may offer significant tax savings for millions of workers who earn tips or overtime pay.
While the official rules appear in IRS Notice 2025-69, below is a clear overview of what workers should know.
- “No Tax on Tips” — Key Change”
From 2025 through 2028, workers who receive qualified tips may be eligible for a deduction of up to $25,000 per year.
Who may benefit
- Servers and bartenders
- Hotel and hospitality workers
- Salon and spa professionals
- Rideshare and delivery drivers
- Tour guides
- Individuals who receive tips, including the self-employed
Income limits
- Phases out above $150,000
- $300,000 for joint filers
How to document tips
Workers may rely on:
- Tips reported on a W-2
- Tips reported on Form 4137
- Tips reported to an employer
- Personal records for self-employed individuals
👉 Accurate records are essential.
“No Tax on Overtime” — New Deduction”
- For 2025–2028, workers may deduct the overtime premium portion of their pay — generally the “half” in time-and-a-half wages.
Maximum deduction
- $12,500 per year
- $25,000 for joint filers
Key points
- Available whether or not you itemize
- Applies to legally required overtime premiums
- Certain exempt employees may not qualify
Examples
- Overtime premium of $5,000 → May deduct $5,000
- $15,000 total overtime pay → One-third ($5,000) may qualify
- Double-rate overtime → Only the premium portion counts
This guidance does not change labor rules; it provides a tax deduction opportunity.
- Action Steps for 2025
- 📌 Track tips and overtime carefully
📌 Retain pay stubs, logs, and payroll statements
📌 Review updated IRS forms during filing season
📌 Confirm eligibility based on income limits
These benefits are not automatic—they must be claimed on the tax return.
Why It Matters
- Millions of workers rely on tips and overtime
- Deductions may substantially reduce taxable income
- Self-employed individuals may qualify with proper documentation
- Non-itemizers may also benefit
In short: This guidance may create meaningful tax savings for eligible workers.
- Zaher Fallahi, Tax Attorney & CPA
Advises clients nationwide on federal tax matters, including cryptocurrency taxation. Holds an MIT Blockchain Certificate.
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