New Jersey Society of CPAs Clarifies One Big Beautiful Bill’s Hourly Worker Tax Deductions

What “No Tax on Tips and Overtime” Really Means 

The New Jersey Society of CPAs (NJCPA) reminds New Jersey taxpayers that new tax deductions exist for hourly workers in the One Big Beautiful Bill (OBBB) signed into law by the Trump Administration on July 4, 2025. 

Workers who receive tips can deduct up to $25,000 in qualified tips, whether they are received via cash, credit cards or digital payment platforms, from gross income starting in tax year 2025. Aimed at assisting lower- and middle-income taxpayers, the tax deduction is available for single filers who earn less than $150,000 in modified adjusted gross income and joint filers who earn less than $300,000. 

Workers are also allowed to deduct their “qualified overtime” compensation, or what they make in an extra hour of work, up to $12,500 for single workers and $25,000 for joint filers. The portion that can be deducted is the “premium” portion of their overtime compensation, which is the amount paid above the hourly rate. For example, if an employee earns $20 per hour and their overtime rate is $30 per hour (time and a half), the “qualified overtime” would be the $10 premium per hour, not the full $30. 

The IRS said it would not make any changes to withholdingwithholding tables tables or information returns, including Form W-2, 1099, 941 and others, for tax year 2025 to provide enough time to adapt to the provisions but it will have updated forms for the 2026 tax year. By Oct. 2, 2025, the IRS will publish a list of occupations that “customarily and regularly” receive tips. 

It is important to note that these deductions apply at the federal level only. 

“CPAs are a great resource for these and other tax-related issues. Our members have a wealth of information on both federal and state tax topics and routinely share their knowledge with businesses and the community,” said Aiysha (AJ) Johnson, MA, IOM, CEO and executive director at the NJCPA. 

Other tax provisions of the OBBBA can be found here. Taxpayers seeking assistance can access a searchable list of CPA firms at njcpa.org/findacpa.