The One Big Beautiful Bill Act removes certain tips from taxation and exempts overtime pay, but when you file your taxes in 2026, you’ll need to follow the revised IRS guidelines.
The IRS has indicated that they will provide new guidance and updated forms for the 2026 tax year regarding how overtime pay should be reported. They plan to work closely with employers, payroll companies, and tax professionals to ensure everything goes smoothly.
Over the next few months, additional information will be released on how taxpayers can claim benefits associated with this bill when they file their returns.
In the meantime, the IRS has confirmed that there won’t be any modifications to specific information returns or withholding tables for the 2025 tax year, as part of the gradual rollout of the bill.
Here are some important points concerning the 2025 tax related to the bill’s provisions:
- Form W-2, the current Form 1099, and Form 941 will remain unchanged for 2025.
- The Federal Income Tax Withholding Schedule will not be updated because of these 2025 tax provisions.
- Employers and payroll companies should continue with the existing methods for reporting and withholding taxes.
“These decisions aim to minimize confusion during tax season and afford the IRS, businesses, and tax professionals sufficient time to implement the changes,” the IRS noted in a statement.
No Taxes on Tips
The Act allows for deductions of tips received in certain jobs. Therefore, employees in those fields can now deduct their tips from taxable income, making that income exempt from federal taxes.
That said, there are rules and limits. Workers can deduct up to $25,000 annually for qualified tips, which can include cash tips, tips added via card transactions, and those shared in communal settings.
The Act specifies qualified tips as “tips received by individuals in a customary and regular occupation.”
No Taxes on Overtime
The Act also introduces deductions for eligible overtime earnings, allowing workers to deduct these from their taxable income and making them exempt from federal income tax.
Again, there are exceptions and limits to consider. Single filers can deduct up to $12,500 per year on eligible overtime earnings, while married couples can jointly deduct up to $25,000.
Taxpayers can only deduct overtime pay that exceeds their regular hourly wages. If you earn an hourly wage while working overtime, you can only deduct an additional 50%.
Additionally, the deduction starts to phase out for single filers making over $150,000 and joint filers over $300,000, decreasing by $100 for every $1,000 over those limits.
For further details, refer to the One Big Beautiful Bill Act provisions of 2025.
