What You Need to Know About the NEW One, Big, Beautiful Bill Act of 2025

We understand that changes to tax laws can be confusing. To help you navigate the new regulations from the "One, Big, Beautiful Bill Act of 2025" (OBBBA), here is a breakdown of what you need to know about reporting tips and overtime.

Important Tax Changes for 2025 and 2026

The OBBBA introduces new tax deductions for qualified tips and overtime. While the law is effective for the 2025 tax year, the reporting requirements for employers will change in two phases.

For the 2025 Tax Year (Filing in 2026)

For tips and overtime you earned in 2025, your employer will continue to use the existing reporting methods on your W-2.

This means:

No W-2 changes: Your W-2 for the 2025 tax year will not have new boxes or codes for tips and overtime.

Continued Withholding: Your payroll withholding will not change. All tips and overtime will continue to be subject to normal payroll taxes (Social Security, Medicare, etc.).

Employee Responsibility: The tax benefit is a deduction you will claim when you file your 2025 federal tax return in 2026. The IRS is expected to release a new tax schedule, Schedule 1-A (Form 1040), for this purpose.

Adjusting Your Withholding: If you want to adjust your tax burden now to account for these new deductions, you may need to submit a new Form W-4 to your employer.

For the 2026 Tax Year and Beyond

The W-2 form will be updated to make claiming these deductions easier for you. For the 2026 tax year, your W-2 will include new reporting codes and boxes:

Box 12, Code TP: This new code will report the total amount of your qualified tips.

Box 12, Code TT: This new code will report the total amount of your qualified overtime compensation.

Box 14b: A new sub-box will be added to Box 14, which will contain your "Treasury tipped occupation code" to identify your qualifying occupation.

What This Means for You, the Employee

The OBBBA provides new deductions for tips and overtime, but it's important to understand the details:

Deduction Limits: You can deduct up to $25,000 for qualified tips and up to $12,500 for qualified overtime pay.

Income Limitations: These deductions will begin to phase out for higher-income taxpayers.

Qualifying Occupations: The Treasury is expected to publish an official list of occupations that "customarily and regularly received tips" by October 2, 2025. Only those in a qualifying occupation will be able to claim the tips deduction.

Taxes Still Apply: Remember, your total income—including tips and overtime—is still subject to Social Security and Medicare taxes. The benefit is a deduction from your taxable income, not an exemption from these taxes.

If you have questions about how these changes affect your personal tax situation, we recommend consulting with a qualified tax professional.