No Tax on Tips & Overtime? Here’s What Workers Need to Know About Trump’s “One Big Beautiful Bill”

Politics aside, one thing that cannot be ignored is that Donald Trump has pushed several tax changes focused on working-class Americans.

One of the most talked-about changes from the “One Big Beautiful Bill Act” is the temporary federal tax deductions for qualified tips and overtime pay.

At Tax City Advisors, we’ve already helped qualifying clients apply these deductions during the 2025 tax filing season, and many workers were surprised to learn they may qualify.

So… Is It Really “No Tax” on Tips and Overtime?

Not exactly.

This is one area where social media headlines can be misleading.

The law does not completely eliminate taxes on tips or overtime. Instead, it creates a federal income tax deduction for qualifying tip income and qualifying overtime compensation.

That means:

• Tips and overtime still must be reported properly

• Social Security and Medicare taxes may still apply

• State taxes may still apply depending on your state

• But qualifying workers may be able to reduce their federal taxable income

For many workers, that can still make a noticeable difference on their refund or tax balance.

What Is the One Big Beautiful Bill Act?

The “One Big Beautiful Bill Act” is a federal tax law package focused on providing temporary tax relief and economic incentives for working Americans and families.

The bill includes multiple provisions designed to reduce taxable income for certain taxpayers, encourage spending and investment, and provide financial relief during the qualifying years established under the law.

Several of the provisions are temporary and currently apply to tax years 2025 through 2028 unless extended by Congress.

How Long Do the Tip & Overtime Deductions Last?

Current guidance states these deductions are temporary and apply for tax years:

• 2025

• 2026

• 2027

• 2028

Unless Congress extends the law, the provisions are currently scheduled to expire after 2028.

How Much Can Workers Deduct?

Qualified Tips

Eligible workers may deduct up to:

• $25,000 in qualifying tip income annually, subject to income limitations.

Qualified Overtime

Eligible workers may deduct up to:

• $12,500 in qualified overtime pay for single filers

• $25,000 for certain joint filers, depending on qualifications and filing status.

*Income phaseouts may apply for higher earners.

Important: Not All W-2s Clearly Show Qualifying Overtime

One thing many taxpayers do not realize is that qualifying overtime information may not always be clearly identified on a W-2.

That’s why it’s important to work with a knowledgeable tax professional who understands the rules and can help determine whether you may qualify for these deductions.

Many taxpayers could potentially miss out simply because they assume they do not qualify or because they were unaware the deduction exists.