The Rules for Paying Taxes on Tips and Overtime Are Changing Thanks to Trump's Big Beautiful Bill. Here's What to Expect
Tax attorney Jennifer Karpchuk was quoted in a Fortune article about the changes related to taxes on tips and overtime pay in the new federal budget. The One Big Beautiful Bill Act provides an above-the-line deduction for the first $25,000 in tips for those in certain service roles. While the U.S. Department of the Treasury and IRS work to update regulations for businesses and taxpayers, Ms. Karpchuk shared insight about who could qualify.
"To be a 'qualified tip' for purposes of the deduction, the amount must meet certain requirements, including being paid voluntarily and determined by the payor," she said. "Therefore, for instance, the deduction may not apply where a restaurant adds a mandated gratuity to the bill for parties over a certain size."
Ms. Karpchuk went on to explain one limitation of the deduction for overtime pay related to the Fair Labor Standards Act (FLSA) also provided by the legislation.
"It would not apply to overtime that is not required under the FLSA but is instead paid because of contractual provisions or because of more stringent state laws," she said.