Global Daily Tax News, US IRS Guides On Calculating Deductions For Overtime, Tips, (Nov 25, 2025)

The US Internal Revenue Service and the Treasury have released guidance for workers eligible to claim the deduction for tips and for overtime compensation for tax year 2025.

Notice 2025-69 clarifies for workers how to determine the amount of their deduction without receiving a separate accounting from their employer for cash tips or qualified overtime on information returns, such as Form W-2 or Form 1099, as those forms remain unchanged for the current tax year. It also provides transition relief to workers who receive tips in the course of a specified service trade or business.

The IRS is in the process of updating income tax forms and instructions for taxpayers to use this filing season.

Under the One, Big, Beautiful Bill, workers may be eligible for new deductions for tax years 2025 through 2028 if they received qualified tips. For tipped workers, the maximum annual deduction is USD25,000, which phases out for taxpayers with modified adjusted gross income over USD150,000 (USD300,000 for joint filers).

In addition, for tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the "half" portion of "time-and-a-half" compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or another specified statement furnished to the individual.

The maximum annual deduction is USD12,500 (USD25,000 for joint filers). The deduction phases out for taxpayers with modified adjusted gross income over USD150,000 (USD300,000 for joint filers). The deduction is available for both itemizing and non-itemizing taxpayers.