No tax on tips

[HOPE2]

IRS says:  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.  

I don’t understand the part that I highlighted. Does this mean that we can deduct tips that were given in 2024 on the 2025 tax return?

[TaxGuyBill]

Do you have a link for where you are seeing that?

It is garbling things up.  Only tips paid in 2025 (and later) qualify. 

The "on or before December 31st, 2024" is referring to jobs that are customarily tipped.  It is basically saying only jobs that are customarily tipped qualify.  That determination of "customarily tipped jobs" is based on what was customarily done "on or before December 31st, 2024".

[Camp1040]

Certain parts sound like an AI hallucination!

[abctax55]

A colleague sent me the 'IRS' Bulletin (on Monday 1.26.26) that she got, showing that same wonky info.

I did NOT get the same Bulletin (& I thought I was signed up...?), and I can't find that same Bulletin info at the IRS website.

I agree with Bill - that wording seems to be discussing the 'who' may qualify to take the exclusion IN 2025.

[TaxGuyBill]

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@Camp1040 wrote:

Certain parts sound like an AI hallucination!

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You are probably right.  I hate it when people are asking things based on stupid AI answers.

[TaxGuyBill]

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@abctax55 wrote:

A colleague sent me the 'IRS' Bulletin (on Monday 1.26.26) that she got, showing that same wonky info.

---

Interesting.  Maybe the IRS is using AI now too and giving us garbage.  On the other hand, in the past the IRS has often been VERY prompt at issuing corrections to wrong emails, so maybe this one was already corrected?

[abctax55]

It's very curious....

Unfortunately my colleague is very 'busy' trying to get her Lacerte updates to install 😉

I'll ask her if she saw a correction, once she can get her software functional.  The 2+ hour call to support didn't help.

[HOPE2]

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

I received an email as subscription

[HOPE2]

I received an email from IRS:

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

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[HOPE2]

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

This is an email which IRS sent as subscription,  news

[Jim-from-Ohio]

Earned in 2024 but on on a 2025 w-2, (timing delay) counts as 2025

[TaxGuyBill]

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@HOPE2 wrote:

Issue Number: Tax Tip 2026-06

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It looks like the actual Tax Tip has been corrected.

https://www.irs.gov/newsroom/one-big-beautiful-bill-how-to-take-advantage-of-no-tax-on-tips-and-over...

Here is a link to the wrong email that was sent:

https://content.govdelivery.com/accounts/USIRS/bulletins/4062537

[abctax55]

Good job Bill.

[HOPE2 · Accepted solution]

@TaxGuyBill Great catch thank you.