"Tax Break Alert: Millions of U.S. Workers Eligible for Deductions on Tips and Overtime Pay in 2025"

Millions of U.S. workers may qualify for a federal tax break on tips and overtime pay in 2025. The U.S. Treasury Department must publish a list of qualifying occupations by Oct. 2. Deduction provisions are set to expire after the 2028 tax year. Employers should continue to withhold taxes while awaiting guidance.

Eligible workers include those who regularly received tips before December 2024. This includes 2.1 million tipped servers and bartenders in the restaurant industry. Barbers, hairdressers, nail technicians, and delivery drivers may also qualify. Workers can deduct up to $25,000 in tips if they make less than $150,000 annually.

Around 60% of tipped workers are expected to see an average tax cut of $1,800 per year. Both cash tips and credit cards are included in the deduction. However, service charges like automatic gratuity are not eligible. Workers must include a Social Security number when filing taxes to qualify.

The Budget Lab at Yale estimates that 8% of hourly workers and 4% of salaried workers regularly receive overtime pay. Workers can deduct up to $12,500 in overtime (or up to $25,000 in a joint return). The average worker can expect a tax cut of $1,400 to $1,750 per year. Tax-free tips and overtime would reduce federal revenue by billions between 2026 and 2029.

Read more at Yahoo Finance: What to know — and what isn’t known yet — about US tax deductions for tips and overtime pay