Overview
- New IRS/Treasury guidance explains how individuals can calculate 2025 deductions for tips and overtime using existing pay records, W‑2 Box 7 data, tip logs, or reasonable methods, with examples for common scenarios.
- For 2025, employers receive penalty relief under Notice 2025-62 if they do not separately report qualified tips, tipped occupations, or qualified overtime, provided returns and statements are otherwise complete and correct.
- Enforcement of the specified service trade or business exclusion is postponed until after final regulations, temporarily allowing more tipped workers to qualify in 2025.
- Forms W‑2/1099 are unchanged for 2025; a draft 2026 W‑2 adds Box 14b for tipped-occupation codes and directs reporting of qualified tips (code TP) and qualified overtime (code TT), signaling stricter compliance next year.
- The temporary deductions run 2025–2028 and include caps—up to $25,000 for qualified tips and up to $12,500 for single filers or $25,000 for joint filers on qualified overtime—with phase‑outs above $150,000/$300,000 MAGI and no change to FICA treatment; roughly 6 million tipped workers could be affected.