IRS issues guidance on ‘no tax on tips’ and overtime ahead of tax season as experts predict ‘off the charts’ confusion

If you’ve gotten excited astir President Trump’s “no taxation connected tips” provision, a caller connection from the Internal Revenue Service could permission you a spot disappointed.

Ahead of the 2026 taxation season, the IRS has released guidance for workers who tin assertion deductions for overtime wage and tips. While workers volition beryllium capable to deduct these things from their taxable income, it’s important to recognize that these provisions from Trump’s “Big Beautiful Bill” are temporary, capped astatine a definite limit, and lone disposable to circumstantial occupations successful definite industries.

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In different words, the nary taxation connected tips and nary taxation connected overtime provisions are considered targeted deductions, arsenic opposed to a afloat “tips and overtime are tax-free” program. Since this could make immoderate confusion, here’s what you request to know.

According to IRS estimates, astir six cardinal American workers study tipped wages, portion astir 6% of the country’s enactment unit reported overtime wage successful 2024, CNBC reports (1).

In the caller year, this ample cohort of taxpayers volition person to navigate their mode done Trump’s caller taxation rules connected tips and overtime, a process that immoderate experts judge volition make plentifulness of confusion.

“Taxpayer disorder volition beryllium disconnected the charts astatine taxation clip connected these provisions,” Terry Lemons, erstwhile IRS communications and liaison chief, said successful a station shared connected LinkedIn, according to CNBC.

The nary taxation connected tips regularisation lets eligible workers deduct up to $25,000 successful “qualified tips” connected their taxes from 2025 done 2028, which means qualified workers volition lone beryllium capable to deduct their tips for the adjacent fewer years. This taxation interruption besides phases retired if the recipient’s modified adjusted gross income tops $150,000, oregon $300,000 for joined couples filing their taxes jointly. Cash tips besides request to beryllium reported successful bid to qualify.

For overtime pay, Trump’s taxation interruption volition let azygous filers to deduct up to $12,500, portion offering a $25,000 deduction for associated filers. To qualify, a worker’s overtime indispensable conscionable national labour standards, and the idiosyncratic indispensable beryllium a non-exempt W-2 worker (2). Those who suffice for overtime compensation tin deduct the overtime premium (the “half” information of “time-and-a-half”) from their taxable income (3).