You Can Deduct Tips and Overtime. But Not in Your Paycheck Yet
Here’s what that means for you
The IRS just announced that some of the reporting and paycheck-related changes tied to the Tips and Overtime deductions will be delayed until 2026.
Here’s what you need to know:
Starting with your 2025 tax return, you may be able to deduct:
- Qualified Tips – Up to $25,000 in
- Qualified Overtime Pay – Up to $12,500 (or $25,000 for joint filers)
These deductions can lower your taxable income, potentially reducing your tax bill. The deduction begins to phase out when a taxpayer’s modified adjusted gross income exceeds $150,000 (or $300,000 for joint returns). This temporary deduction is available for tax years 2025 through 2028.
But Your Paycheck Will Not Look Different—Yet
Even though these deductions are allowed, the IRS says that:
- Employers will keep using the current tax forms like W-2s and 1099s through 2025.
- The federal withholding tables will not be updated yet to reflect these changes.
- That means you will not see these tax breaks show up on your paystub or paycheck in 2025.
Instead, you will claim these deductions when you file your 2025 tax return.
IRS Will Roll Out New Reporting in 2026
The IRS plans to update forms and tax withholding processes in time for the 2026 tax year. This gives payroll providers, employers, and tax professionals time to prepare without disrupting the 2025 filing season.
We will continue to share updates as the IRS releases more guidance. Please consult a qualified tax or legal expert before acting on any of these provisions.