Overtime pay deduction: For 2025 employees can deduct $12,500 of the overtime premium (the one-half of the time and a half amount). The deduction is per individual and it is an above the line deduction (Reduces taxable income). Employers are responsible for providing this information to employees for 2025 by statement or by using box 14 of the W2. Next tax year (2026), the information will be present in a new box on the W2.
Tip Income: For the next four years, up to $25,000 of qualifying tips reported on a W2 can be deducted. Mandatory service charges, i.e. percentages added to a bill for tables over a certain number of customers, are not considered voluntary payments from customers and are not qualified tips. This is an above the line deduction of the tips reported on the W2. The deduction is available for employees and self employed contractors. Over the years, there have been numerous attempts to ascertain the total of untaxed tip income, a historically underreported income amount. This is an interesting deduction and one may consider the reasoning behind this targeted deduction.
