New Tax Breaks for Tipped and Overtime Employees: What Employers Need to Know

by | Jul 31, 2025

ARTICLE | July 31, 2025

On July 4, 2025, President Trump signed the One Big Beautiful Bill (OBBB) into law, introducing sweeping tax reforms with significant implications for the hospitality, retail, and construction sectors. Among the most impactful provisions are the temporary federal tax deductions for qualified tips and overtime pay, effective from the 2025 through 2028 tax years.

For individuals, these deductions apply regardless of whether they itemize and are subject to income limitations. Notably, the maximum deduction is assessed per tax return, not per taxpayer—meaning married couples must file jointly to claim the full benefit. For businesses, the changes bring new administrative responsibilities, including tracking, reporting, and compliance with definitions of “qualified tips” and “overtime compensation.”

While further guidance from the Treasury is expected within 90 days of enactment, employers and employees alike are encouraged to begin planning now to take full advantage of these tax-saving opportunities.


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