New Tax Deductions for Overtime and Tips in 2025

Got story updates? Submit your updates here. ›

The 'One Big Beautiful Bill' has introduced new tax changes for the 2025 tax year that may help taxpayers get a bigger refund. Individuals who earned overtime pay or tips can now deduct a portion of that income on their tax returns, as long as the tips and overtime are properly reported.

Why it matters

These new tax deductions could significantly impact the refunds of workers who earn overtime pay or rely on tips as a major source of income, potentially putting more money back in their pockets. However, taxpayers must be diligent in properly documenting and reporting their overtime and tip income to take full advantage of the new deductions.

The details

For overtime pay, taxpayers can deduct up to $1,000 for every $3,000 in overtime earnings, as long as the overtime was paid at a rate of time and a half. For tips, taxpayers can deduct the full amount of tips reported on their tax forms, whether the tips were paid in cash or via debit/credit card. There are some income limitations on who can claim these deductions, but they apply regardless of whether the taxpayer itemizes deductions or takes the standard deduction.

• The new tax deductions for overtime and tips apply to 2025 tax returns, which will be filed in early 2026.

What they’re saying

What’s next

Taxpayers should carefully review their 2025 pay stubs and tip records to ensure they are properly documenting and reporting their overtime and tip income in order to take full advantage of the new deductions when filing their 2025 tax returns.