Big Beautiful Bill Part 3: Tips and Overtime

What is it?

Prior to the One Big Beautiful Bill Act, tips and overtime were met with the same taxes as regular income. Now following the passing of the bill on July 4, 2025, there are new guidelines for how to report, pay taxes and get tax credits for tips and overtime. Starting this tax year, all cash tips over $20 per month must be reported to employers, so that taxes can be withheld properly from both the tips and wages. The new deduction that is applied starting this year is $25,000 and is applicable over all tips earned reducing overall income tax liability. For the overtime deductible it is applied when the new income would bring individuals into a higher tax bracket, making it so only the portion of overtime wages exceeding regular wage is taxed at the higher percentage. The new $12,500 deductible is to offset these higher taxes and allow for less tax liability. Both tips and overtime deductibles do not reduce social security and medicare taxes.

How does this affect you?

These deductions will now reduce the tax liability for tip and overtime earners in almost all sectors. While the bill does not remove the taxes on either this is a step towards getting taxes removed on either. These changes also will free up some of the income earned in both sectors allowing for more income influx for these types of workers, which will incentivize workers. For employers, these changes bring a change to how they file taxes for employees and how their payroll can be effected starting in the 2025 tax year.

Why is this important?

Starting this year, and with a current expiration date of December 31, 2028, these changes will affect a large portion of workers across the United States and will allow more take home income for these workers, while also reducing their tax liability on taxable income. For employers this can affect their payroll situations. Meaning that there will be changes to how to take taxes out of paychecks. For individuals this means that there will be a change to their filings at the end of the tax year, that will affect how their liability looks and how this will affect them going forward. 

How can we help you?

Reach out via our phone number, email or website to book a consultation with our talented staff to see how we can help you to better understand how this will affect you and to help you gain insights to your taxes or payroll and get everything sorted in a professional and secure manner.