A summary of new “No Tax on Tips” and “No Tax on Overtime” laws
Prepared by the Culinary and Bartenders Legal Service Fund
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“No Taxes on Tips”
Tips are not tax free. This is a new deduction.
Effective date: Retroactive to January 1, 2025.
Tax years covered: 2025, 2026, 2027, and 2028.
Expiration: December 31, 2028 (unless extended).
Tip deduction:
*Not a miscellaneous itemized deduction.
*Applies to occupations where tips are customary.
*U.S. Treasury published list of eligible occupations on 9/19/2025 (occupations that regularly received tips before December 31, 2024).
*IRS generally included all positions currently classified as tip-earning.
*Social Security and Medicare taxes will still be deducted.
*Person earning tips must provide Social Security number (SSN) (not ITIN).
*Married taxpayers are only required to include SSN of taxpayer who received the tips to claim deduction.
*SSN is required of both taxpayers only when both have tips for which they are claiming a deduction.
*Filing requirement: married persons must file joint return to get any deduction.
Deduction limits:
*Single person can deduct up to $25,000 tips.
*Married persons get only one $25,000 deduction per couple (max. $25k per joint return).
*Either spouse or both can be the tip earner(s), can combine tips up to $25k.
*Deduction reduced if make more than $150k adjusted gross income, single / $300k married filing jointly.
Applies to:
*Cash and credit card tips.
*Pooled tips.
*Tip-outs (tip shares).
*Allocated tips if participant in tip compliance program.
Does *not* apply to:
*Automatic gratuities (not “voluntary,” and classified as “wages”).
*Non-tip positions (e.g., kitchen staff, performing arts).
Culinary and Bartenders Union members:
*Do not have to itemize deductions to claim.
*Must keep tip records and report tips if not in tip compliance program.
*Must report or allocate tips to claim deduction.
Nevada domestic partnership:
*Not considered “married” under federal law. Each partner must file a separate return.
*Each partner can get up to $25,000 tip deduction.
*Each partner can get up to $12,500 overtime deduction.
Employer responsibilities (2026):
*Employer must provide tip amount, job classification, and overtime information.
*Most employer paystubs already include tips and overtime for the pay period.
*Employers are required to modify withholding tables.
Note: IRS has issued guidance on how to file 2025 returns (IRS Notice 2025-69).
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“No Taxes on Overtime”
Overtime is not tax free. This is a new deduction.
Effective date: Retroactive to January 1, 2025.
*Single persons can deduct up to $12,500.
*Married persons can deduct up to $25,000.
*Married persons must file joint return (must file joint return to get any deduction).
*Married filing joint taxpayers can stack deduction (either spouse can earn the overtime).
Overtime deduction:
*Deduction is for amount of wage that exceeds regular pay. Example: $30/hr regular, $45/hr overtime rate = $15 is amount deductible.
*Do not have to itemize deductions to claim.
*Deduction reduced if you make more than $150k single / $300k joint return.
Employer responsibilities (2026): Employer must provide overtime information.
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FAQ & recommendations -
What do I need to do now?
*Tip reporting and allocation systems will not change.
*Continue to keep tip logs. Members must be able to show eligible classification and that amount deducted (and taxable portion) is correct.
*Continue to report tip income if self reporting.
*Get and keep 2025 paystubs showing tip and overtime information and keep with tax records.
*Confirm IRS classification in tip earning position (customarily receive tips).
*Review changes to withholding tables when made by employer.
What information do I need to file my 2025 return?
*2025 W-2s will not include changes in these laws.
*IRS accepts the following to show tip deduction:
-Form W-2, Box 7 (IRS can still audit, still need to keep tip log).
-Form 4070, tips reported to employer.
-Form 4137, unreported tips filed with tax return.
-IRS accepts reasonable effort to determine overtime deduction for 2025, but you must be able to show how you computed it and keep records.
*Delays in refunds are possible. Do not count on receiving tax refund right away for essential needs.
Will this change affect my Social Security or Medicare credits?
No change. Tips are still subject to Social Security and Medicare tax. You get full credit for retirement and disability benefits.
Will this law change be made permanent?
To be determined. Currently set to expire at the end of 2028.
Will Congress or IRS make any changes in current law or regulations?
Keep watch for future action. Attend Legal Service Fund workshops for updates.
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Examples:
Tip example #1: Married couple, both have SSNs. W earns $20,000 tips, and H also earns $20,000 tips. Couple must file joint return to get any deduction. Couple gets one $25,000 deduction per joint return.
Tip example #2: Same as above, but couple each file married separate returns. Each gets $0 deduction. Joint return required for married persons to get any deduction.
Overtime example: Married couple, both have SSNs. W earns $5,000 net overtime, and H earns $20,000 net overtime. Can we deduct up to $25,000 for both of us? Yes, if joint return filed. Couple has combined $25,000 limit. “Net” is difference between regular and overtime rates.
Questions? Contact the Legal Services Fund at (702) 386-1550 or go to 725 E. Charleston Blvd., Las Vegas, NV 89104.
Updated: Thursday, January 8, 2025
