What's Happening?
The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have released new guidance for workers eligible to claim deductions for tips and overtime compensation for the 2025 tax year.
The guidance clarifies how workers can determine their deductions without separate accounting from employers on forms like W-2 or 1099. Under the One Big Beautiful Bill, workers may be eligible for deductions on qualified tips and overtime, with specific limits and phase-out thresholds based on income. The IRS is updating tax forms and instructions to assist taxpayers in claiming these deductions.
Why It's Important?
This guidance is significant for millions of U.S. workers who rely on tips and overtime as part of their income. By providing clear instructions on how to claim these deductions, the IRS aims to simplify the tax filing process and ensure that eligible workers can maximize their tax benefits. The deductions could lead to substantial tax savings for workers, particularly those in service industries where tips and overtime are common. This move also reflects broader efforts to address income inequality and support low to moderate-income workers by reducing their tax burden.
