The Internal Revenue Service and U.S. Department of the Treasury have released new guidance on how tips and overtime are taxed — potentially offering significant savings for millions of workers

Under the recently enacted One, Big, Beautiful Bill Act (OBBBA), individuals who receive “qualified tips” or “qualified overtime compensation” during tax years 2025–2028 may claim federal income-tax deductions that could reduce their taxable income.

Here’s a rundown of what workers should know heading into the 2025-2026 tax season.

What’s New

Tips deduction — Workers who earn tips may deduct up to $25,000 of qualified tips per year. However, benefit limits begin to phase out for individuals with modified adjusted gross incomes greater than $150,000 annually or $300,000 for joint filers.

Over

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