The One Big Beautiful Bill Act (OBBBA) introduced two new, retroactive, and temporary federal income tax deductions starting in the 2025 tax year (and currently through 2028) applicable to employees who receive qualified tips or qualified overtime compensation. Under IRS guidance, employers are not required to change how they report pay for 2025. Due to the lack of changes from employer/payer reporting, additional IRS guidance provides employees with instructions for determining the amount of their deduction without a form like a Form W-2, Wage and Tax Statement, from their employer. Beginning in tax year 2026, information returns furnished to employees will separately report certain tips and overtime. IRS final regulations identify occupations that customarily and regularly receive tips on or before December 31, 2024, and define qualified tips for purposes of the deduction. The regulations are effective June 12, 2026, and apply to taxable years beginning after December 31, 2024.

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