For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay
The Department of the Treasury and the Internal Revenue Service have issued guidance for workers eligible to claim the deduction for tips and for overtime compensation for tax year 2025.
The IRS has set January 26, 2026, as the opening date for the 2026 filing season. Taxpayers must submit their 2025 tax returns and pay any due taxes by the deadline of April 15, 2026.
The IRS Free File program is accepting individual tax returns starting Friday, January 9, for qualified taxpayers. Taxpayers comfortable preparing their own taxes can use IRS Free File Fillable Forms starting January 26, regardless of income. The last date for all taxpayers remains April 15, 2026.
No Tax on Tips
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 $25,000, which phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). It is estimated that there are about 6 million workers who report tipped wages.
IRS has laid down the process clarifying how workers can 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.
No Tax on Overtime
For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
The maximum annual deduction is $12,500 ($25,000 for joint filers) and the deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). The deduction is available for both itemizing and non-itemizing taxpayers.
Taxpayers can use the new Schedule 1-A to claim recently enacted tax deductions, such as no tax on tips, no tax on overtime, no tax on car loan interest and the enhanced deduction for seniors.