Former Reagan economist Art Laffer and former World Bank President David Malpass rate the economy under the Trump administration at ‘Kudlow’.
The new year will bring with it a host of tax breaks that Americans will be able to take advantage of when filing their taxes in just a few weeks.
The tax authorities has released its guidance on the “no tax on tips” and “no tax on overtime” provisions of the One Big Beautiful Bill Act (OBBBA), for employees who can claim the deductions for the 2025 tax year.
President Donald Trump signed the OBBBA in July after the Republican majority in Congress passed the tax reform and spending bill on a party-line vote this summer.
The law included “no tax on tips” and “no tax on overtime,” and the Treasury Department and the IRS are now issuing guidance as the law helps workers determine their deductions.
The IRS notice stated that taxpayers eligible for the tip and overtime deduction may need to determine these amounts separately this year because Form W-2 and Form 1099 will not be updated to include tip and overtime income for the 2025 tax year.
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The IRS has released guidance on new tax deductions for eligible tip and overtime income. (Lindsey Nicholson/UCG/Universal Images Group via Getty Images) / Getty Images)
Taxpayers can view examples in the IRS guidance which illustrate how tip income and overtime deductions work based on the relevant reported or unreported income they received.
Under the OBBBA, employees receive qualified tips can deduct an annual maximum of $25,000, and the deduction is phased out for taxpayers with an adjusted adjusted gross income of more than $150,000 (or $300,000 for joint filers).
The IRS estimates that there are approx 6 million workers who tip on their wagesand the tip income deduction is in effect for tax years 2025 through 2028.
Eligible employees can deduct up to $25,000 in tips. (Lindsey Nicholson/UCG/Universal Images Group via Getty Images/Getty Images)
The “no tax on overtime” provision allows individuals who receive qualifying overtime compensation to deduct wages in excess of their regular wages – which is typically the “one-half” portion of the “time and a half” overtime compensation – reported on a Form W-2, Form 1099, or other specified statement.
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The maximum annual deduction is $12,500 (or $25,000 for joint filers), and the deduction is phased out for taxpayers with an adjusted adjusted gross income of more than $150,000 (or $300,000 for joint filers). Notably, the deduction is available to itemized and non-itemized taxpayers.
The Fair Labor Standards Act requires most employees to be paid at least the federal minimum wage for all hours worked and overtime pay of at least one-and-a-half hours of their regular rate of pay for working more than 40 hours per week.
President Donald Trump made “no tax on tips and overtime” a key part of his economic agenda included in the OBBBA. (Win McNamee/Getty Images)
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However, some employees are exempt from overtime rules, such as employees who receive a salary of at least $1,128 per week or $58,656 per year, or employees in certain professional positions.
Additionally, the IRS said it is updating income tax forms and instructions for taxpayers to use this filing season, which will help them claim these deductions.
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The start date of the filing season for the 2025 tax year has yet to be announced, although in recent years it has been in late January.
