In November 2025, the Treasury and IRS released major new guidance for workers who received tips or overtime pay during tax year 2025. These rules come from the One, Big, Beautiful Bill and introduce two significant temporary tax benefits:
✔ No Tax on Qualified Tips (2025–2028)
✔ New Deduction for Overtime Premium Pay (2025–2028)
This guidance, detailed in Notice 2025-69, explains how workers should calculate their deductions — even though Forms W-2 and 1099 will not yet show these amounts separately.
Below is a complete breakdown of how the new deductions work, practical examples, mistakes to avoid, and situations we’re already seeing with Velin & Associates’ clients — including YouTubers, online sellers, medical professionals, and service-industry employees.
The “No Tax on Tips” Deduction for 2025–2028
For the first time, tipped workers may deduct up to $25,000 in qualified tips per year.
✔ Deduction Limit:
• $25,000 single
• $25,000 married filing jointly
• Phases out starting at $150,000 MAGI ($300,000 MFJ)
✔ Who benefits?
More than 6 million tipped workers, such as:
• Servers, bartenders, baristas
• Rideshare drivers
• Hairstylists and nail technicians
• Housekeeping staff
• Self-employed individuals in “specified service trades or businesses”
Creators, online sellers, and freelancers are not typically tipped, but crossover occurs — for example, tour guides, photographers, performers, or content creators who receive gratuities.
How to Calculate Your Qualified Tips
IRS Notice 2025-69 provides examples. Below is a clearer explanation, plus Velin & Associates client scenarios.
Example 1: Restaurant Server — Straight from W-2
If you are a server whose 2025 W-2, Box 7 reports $18,000 in Social Security tips
and you did not report extra tips on Form 4137:
✔ You can deduct $18,000 as qualified tips.
Example 2: Bartender With Reported + Unreported Tips
If you are a bartender who reported $20,000 in tips to your employer
and an additional $4,000 of unreported tips on Form 4137
while your W-2 Box 7 shows only $15,000:
You may use either:
• $15,000 (W-2 Box 7), or
• $20,000 (tips reported to employer)
PLUS the $4,000 unreported tips
➡ Possible deduction: $24,000
Example 3: Self-Employed Travel Guide
If you are a sole proprietor and received $7,000 in tips through TPSOs (Venmo, Stripe, PayPal):
Your 1099-K shows your total $55,000 revenue but does not separate tips.
Because you kept daily tip logs:
✔ You may deduct $7,000 in qualified tips.
Example 4: YouTuber / TikToker Receiving Cash Tips on Livestreams
A creator client received:
• $9,200 in livestream “tips”
• $4,000 in PayPal “thank-you” transfers
• $2,000 in Cash App gifts tied to content
These qualify if they are voluntary, given for a service, and recorded.
➡ Total deduction: $15,200
This is a typical scenario we handle as:
CPA for YouTubers • CPA for TikTokers • CPA for Creators
Example 5: Amazon Business Owner Who Also Drives Uber Part-Time
If you are an Amazon business owner who also drives Uber 12 hours a week
and received $8,900 in tips tracked automatically in the app:
➡ You can deduct $8,900, reducing taxable income from both businesses.
Example 6: Dentist Receiving Tips for Whitening Sessions
Some dental practices receive optional tips for cosmetic services.
If you are a dentist who received:
• $3,200 in Zelle tips
• $1,800 in cash
➡ Total deduction: $5,000
Keeping logs and reconciling deposits is essential.
The Overtime Deduction (2025–2028)
This deduction allows workers to deduct the “extra” half of time-and-a-half wages — the portion above regular pay.
✔ Deduction Limit:
• $12,500 per year (single)
• $25,000 per year (joint)
• Phases out at $150,000 / $300,000 MAGI
• Available whether you itemize or not
How the Overtime Deduction Works. Basic Principle:
If you earn time-and-a-half, the half-time premium is deductible.
Example 1: Overtime Premium Listed Separately
If your employer reports $5,000 overtime premium:
➡ Deductible: $5,000
Example 2: One Line Showing $15,000 Total Overtime
IRS says divide by 3:
➡ $15,000 ÷ 3 = $5,000 deductible
Example 3: Double-Time Workers
If you earned $20,000 at double-time, divide by 4:
➡ $20,000 ÷ 4 = $5,000 deductible
Example 4: Law Enforcement — 14-Day Work Period
Overtime of $15,000:
➡ $15,000 ÷ 3 = $5,000 deductible
Example 5: Government Employees Paid Comp Time
Comp-time wages of $4,500:
➡ $4,500 ÷ 3 = $1,500 deductible
Example 6: Filmmaker Working 60-Hour Weeks
If you worked 20 weeks at 60–70 hours
and earned $18,000 overtime (time-and-a-half):
➡ $18,000 ÷ 3 = $6,000 deduction
Example 7: RN Working Double Shifts in a Medical Practice
If you earned $22,000 overtime total:
• $12,000 time-and-a-half → $12,000 ÷ 3 = $4,000
• $10,000 double-time → $10,000 ÷ 4 = $2,500
➡ Total deduction: $6,500
Example 8: High-Net-Worth Individual With Two Part-Time Jobs
If you earned $14,000 overtime across both employers:
➡ $14,000 ÷ 3 = $4,666 deduction
What Taxpayers Need to Do Now
1️⃣ Keep detailed logs of all tips (CashApp, Venmo, PayPal, Zelle).
2️⃣ Save all paystubs showing overtime.
3️⃣ Make sure employer reporting matches your own records.
4️⃣ Work with a CPA who understands these new rules to avoid mistakes.
5️⃣ Expect IRS form changes beginning January 2026.
At Velin & Associates, we are already helping clients calculate both deductions — accurately and safely.
Need Help Understanding Your Tip or Overtime Deduction? We Can Help.
This is the first tax season with these new deductions — and mistakes will be common.
Make sure you are maximizing your benefit while staying compliant.
For more information about our tax planning services, contact us today: visit our website.
Velin & Associates, Inc
8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org
CPA for YouTubers | CPA for Shopify Store | CPA for Online Commerce | CPA for Creators | Shopify Store CPA | CPA for Filmmakers | CPA for Amazon Business | Amazon Business CPA | CPA for Dental Practice | Dentist CPA | Dental Business CPA | Online Commerce CPA | CPA for TikTokers | CPA for Doctors | CPA for Medical Practice | CPA for High Net Worth Individuals
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