Overview
- For tax years 2025–2028, workers can deduct up to $25,000 in qualified tips and up to $12,500 in qualified overtime ($25,000 for joint filers), subject to phaseouts above $150,000 for single filers and $300,000 for married couples.
- Qualified tips must be cash or cash‑equivalent, voluntarily given, and readily convertible to cash, while mandatory service charges and payments tied to illegal activity do not qualify.
- Only the Fair Labor Standards Act premium portion of overtime is deductible, excluding overtime owed solely under state law or collective bargaining agreements.
- Treasury published a list of eligible occupations spanning food service, hospitality, entertainment, personal services, transportation, and other tip‑reliant roles.
- Employers must begin reporting only the deductible amounts of tips and overtime in new W‑2 boxes for 2026, after a 2025 grace year that relied on optional Box 14 or supplemental statements and created payroll‑tracking challenges.