IRS Guidance on Qualified Tip and Overtime Deductions
The IRS has released guidance on the new federal deductions for qualified tips and qualified overtime compensation, effective for tax years 2025–2028. Below is a brief summary of what employers and employees should know.
Employer Responsibilities (2025 Guidance)
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Forms W-2 and 1099 are unchanged for 2025. Employers are not required to separately report qualified tips or qualified overtime on tax forms.
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Continue following existing payroll, tip, and overtime reporting rules.
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Ensure payroll records and paystubs remain accurate and accessible.
Important Clarification
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Box 7 or 8 of Form W-2 will include wages and tips reported to, or allocated by, the employer, consistent with current rules. See below how employees should be advised.
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Employers are not required to calculate or identify deductible tip or overtime amounts for employees.
How Employers Should Direct Employees
Employees who may qualify for the deductions should be advised to:
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Review their paystubs and year-end payroll summaries to understand tips and overtime earned during the year.
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Use these records to help determine deductible amounts when filing their tax return.
Instructions for Employees (Shareable)
Employees should:
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Keep copies of all paystubs and payroll reports
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Confirm that tips reported to the employer are reflected in Box 1 of Form W-2
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Report any additional tips not previously reported to the employer, as required under existing tax rules
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Consult with their tax advisor to determine eligibility and properly calculate the deduction
LEARN MORE
For detailed IRS guidance on these new deductions, visit:
IRS – Tips and Overtime Deduction Guidance
IRS – Tips and Overtime Deduction Guidance
- Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025 | Internal Revenue Service
- One, Big, Beautiful Bill provisions | Internal Revenue Service
If you have questions about how this applies to your business or your employees, please contact us. We will continue to monitor IRS guidance and share updates as they become available.
Best regards,
Your FNCH Team
Your FNCH Team
Disclaimer:
This blog is for informational purposes only and does not constitute legal, tax, or financial advice. Every business is unique, and laws may vary by location. We recommend consulting with a qualified professional to address your specific circumstances before making any final decisions related to starting or managing your business.