“No Tax on Tips” and “No Tax on Overtime”: What Employees Need to Know for 2025 and Beyond

You may have seen headlines or social media posts about new federal rules related to “no tax on tips” and “no tax on overtime.” While the language online can be confusing, the reality is much more straightforward.

Here’s what these changes actually mean for you — and what to expect for 2025 and 2026 and beyond.

First — The Most Important Thing to Know

 For 2025, nothing changes in your paycheck.

Tips and overtime will continue to be taxed and withheld through payroll as usual. Any potential benefit related to these new provisions is handled when you file your personal tax return, not during payroll processing.

There are no immediate changes to how you are paid. 

2025 Is a Transition Year

 For the 2025 tax year:

• Your W-2 will look the same as prior years

• Tips and overtime are still taxed in your paycheck

• There are no special boxes or new lines on the 2025 W-2 related to tips or overtime

 If you believe you may qualify for any benefit related to tips or overtime, you can use your pay statements and consult your tax professional when filing your 2025 tax return.

Where to Find Your Tips and Overtime Information

Tips

 Your tips are based on what is recorded through payroll. If you believe there is an error, contact your employer’s HR or payroll team as soon as possible so it can be reviewed and corrected if needed.

Overtime

 You can review your year-to-date overtime hours and earnings on your pay statements. If you do not see this information, your employer’s HR or payroll team can provide a summary from payroll records. 

What Is a “Tipped” Position? 

A tipped position generally includes roles such as:

• Server

• Bartender

• Barback

• Busser

• Other roles that receive tips directly or through tip pooling or tip-out

Your eligibility is tied to the job or position assigned to you in the payroll system, not just whether you personally receive tips.

If you are unsure how your role is classified, it is a good idea to confirm with your employer’s HR or payroll team. 

Does This Change How Overtime Is Calculated or Paid? 

No.

Overtime rules, pay rates, and labor law requirements all stay the same. This change is about tax reporting, not how overtime is earned or calculated.

What About State Taxes?

 These changes apply to federal income tax.

Each state has its own tax rules, and not all states follow federal changes. If you have questions about how this may affect your state taxes, check with your tax advisor or your state’s revenue authority. 

Looking Ahead: What Changes in 2026?

 Starting in 2026, employers and payroll providers are expected to support more structured tracking and reporting for:

• Tip-related information tied to tipped job roles, and

• Qualified overtime compensation (generally the premium portion of overtime pay)

This does not mean your pay changes. It affects how information is tracked and reported for tax purposes. 

For 2025, payroll stays the same and your W-2 will look the same. Any potential benefit related to tips or overtime is handled when you file your tax return. Starting in 2026, employers and payroll systems will support enhanced tracking and reporting.

Our goal is to keep you informed, reduce confusion, and avoid surprises.

If you have questions about your specific situation, your employer’s HR or payroll team is your best resource.

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