Breaking down ‘no tax on tips and overtime’

President Donald Trump’s Big Beautiful Bill aims to fulfill a campaign promise he made to workers last fall, but no tax on tips or overtime can be more complicated than the shorthand implies.

The White House says with the signing of the One Big Beautiful Bill act on July 4, the president fulfilled a campaign promise of no taxes on tips or overtime. But tax experts say workers won’t feel relief in their next paycheck.

Employers will still withhold federal taxes from tips and overtime through the end of 2025. 

Instead, eligible workers will have to wait until next tax season for either a bigger refund or a reduced tax payment. 

“There’s no benefit right now. It’s going to be when they file their tax return and then, do they meet the criteria? Do they have support?” Thomas O’Sabin, of the National Association of Tax Professionals, said.

O’Sabin says the tax professionals are still seeking clarity from the IRS, and some areas of the new law, like specifics on eligible workers. What they do know is that workers in jobs that traditionally receive tips will be able to deduct up to $25,000 in tip income from their federal income taxes on their 2025 tax return. Workers who receive overtime could deduct up to $12,500 of that extra pay.

Income limits will apply and the tax break is temporary through the end of 2028.

O’Sabin says the changes make it even more important for workers to track their tips.

“Documentation becomes even more important, otherwise the deduction won’t apply because it could be challenged by IRS and disallowed,” Sabin said

The new federal law doesn’t change tax law for individual states. State income taxes still apply to both tips and overtime.