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2025 Tips/Overtime Deduction “Cliff Notes” From Tax Newsletter with Updates
Tips/Overtime—IRS Notice 2025-69 2 2025-2028 Tax Years
Tips:
Must work in industry where Tipping is routine (e. g. Hair care) AND IRS specifies industry qualifies for Tip Deduction. Hyperlink lists industries and code numbers.
Tip is voluntary. Not subject to negotiation. Not “expected” or an arbitrary charge on customer bill. No additional service required for Tip.
Includes Tips paid via cash or credit card, or via a shared tip pool
Must be included in income on the Tax Return
For 2025 Tax Year, Interim rule: Use W2 Box 7, Form 4137 or Good Faith Estimate. Records helpful.
For 2026 and later years: New Box on W-2/1099 and/or Employer Statement
Maximum Deduction $25,000.
Overtime
Worker ordinarily qualifies for and gets Overtime pay
Overtime Paid is more than the “normal” rate. Includes “comp time” in some instances. Must be “Overtime Equivalent”
Included in W-2 Box 1 or in IRS Gross Income Tax Statement (e. g. 1099)
Can provide other records to show overtime amount (e. g. year end pay stub)
2025 Tax Year: Rely on Year End Pay Stub or Payroll Records (e. g. HR print off)
2026 and Following Tax Years: Employer to provide statement
Maximum Deduction is $12,000 Single or 25,000 Married Filing Joint
Both Tips & Overtime Deduction lost if: File Married Separate or if Taxable income over 150,000 Single or 300,000 Married Filing joint.
Claiming deduction:
Include Total Wages, Tips and Overtime on the proper lines on the return (2025 Form 1040 Box 1a for wages, 1c for tips). As of this post publish date, IRS has published a draft (unofficial) Form 2025 Form 1040 Schedule 1A showing the Tips and Overtime Deduction.
For more information, see above hyperlinks. IRS should be issuing more instructions and guidance on its website: IRS.gov