Tax Tip 2026-06: One, Big, Beautiful Bill: How to take advantage of no tax on tips and overtime

IRS Tax Tips

Jan. 26, 2026

Issue Number: Tax Tip 2026-06

One, Big, Beautiful Bill: How to take advantage of no tax on tips and overtime

The One, Big, Beautiful Bill has a significant effect on federal taxes, credits and deductions. Millions of taxpayers reported earning tips and overtime on their tax returns, many of them are veterans and people working in lower wage jobs. This relief will impact most of these taxpayers and they can start taking advantage of the deduction this filing season.

No tax on tips
Employees and self-employed individuals may deduct qualified tips received in certain qualified occupations, such as wait staff, bartenders, salon workers, personal trainers, gig economy workers, and many more who customarily and regularly receive tips might qualify.

Even better, tips earned on or before December 31, 2024, and are reported on a Form W-2, Form 1099, or other statement furnished to the individual or reported directly by the individual on Form 4137 can be deducted.

“Qualified tips” are voluntary cash or charged tips received from customers or through tip sharing
Maximum annual deduction is $25,000; for self-employed, deduction may not exceed individual’s net income, without regard to this deduction, from the trade or business in which the tips were earned
The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers)

To see examples of how “no tax on tips” is calculated, taxpayers should review this news release.

No Tax on Overtime
Individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay, generally, the “half” portion of “time-and-a-half” compensation, that’s required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.

Maximum annual deduction is $12,500 ($25,000 for joint filers)
Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers)
The deduction is available for both itemizing and non-itemizing taxpayers

More information

Frequently asked questions about the new deduction for qualified overtime compensation

Subscribe to IRS Tax Tips

Thank you for subscribing to IRS Tax Tips, an IRS e-mail service. For more information on federal taxes please visit IRS.gov.

This message was distributed automatically from the IRS Tax Tips mailing list. Please Do Not Reply To This Message.

Update your subscriptions, modify your password or email address, or stop subscriptions at any time on your Subscriber Preferences Page. You will need your email address to log in. If you have questions or problems with the subscription service, visit subscriberhelp.govdelivery.com.

This service is provided to you at no charge by the Internal Revenue Service (IRS).

This email was sent to [email protected] by: Internal Revenue Service (IRS) · Internal Revenue Service · 1111 Constitution Ave. N.W. · Washington, D.C. 20535

Useful Links:

News Essentials

The Newsroom Topics

IRS Resources

Issue Number: Tax Tip 2026-06