We Make Tax Filing A Breeze
As we approach the end of 2025, millions of US taxpayers are preparing to file their returns under the significant changes introduced by the One Big Beautiful Bill Act (OBBBA). The most talked-about provisions the “No Tax on Tips” and “No Tax on Overtime” deductions are finally here.
However, a major question has been looming: How do you claim these deductions if your employer hasn’t separately reported these amounts on your W-2?
The Treasury and IRS have just released Notice 2025-69, providing the critical guidance needed to answer this question. If you worked in the service industry or clocked overtime hours in 2025, here is everything you need to know to ensure you don’t miss out on these tax savings.
Signed into law in July 2025, the new legislation allows eligible taxpayers to deduct a portion of their tip and overtime income from their federal taxable income. This applies to Tax Year 2025 (filed in early 2026) through 2028.
Here is the challenge for this filing season: Because the law was passed halfway through the year, most payroll systems were not ready to track “Qualified Tips” and “Qualified Overtime” separately.
Recognizing this, the IRS granted “transition relief” to employers for 2025. This means your employer is NOT required to separately report these specific deductible amounts on your 2025 Form W-2.
While some employers may voluntarily provide this information in Box 14 of your W-2 or on a separate statement, many will not. This leaves the responsibility on you, the taxpayer, to calculate the correct deduction amount.
In Notice 2025-69, the IRS clarified exactly how you can substantiate your claim if your W-2 doesn’t do the math for you.
If your W-2 does not explicitly list “Qualified Tips,” you can determine your eligible amount using the following sources:
Tip: If you are self-employed (e.g., a gig worker), you can use your own daily logs or records from third-party apps to substantiate your tips, provided you are in a qualifying occupation.
This is slightly more complex. If your pay stubs don’t clearly separate the “overtime premium,” the IRS allows you to use a “reasonable method” to estimate it.
Not every dollar of extra pay qualifies. To prevent abuse, the IRS has set strict boundaries:
The 2025 tax year is unique. It is a transition year where the tax breaks exist, but the paperwork (W-2s) might not match up perfectly. This places a burden on taxpayers to calculate their own deductions accurately to avoid an IRS audit.
What you should do now:
Navigating these new calculations can be tricky, especially for US expats or business owners trying to help their staff. At TheTaxBooks, we specialize in complex US tax filing for individuals and businesses. We can help you:
To learn more about how you can reduce your taxes and save money, check out the helpful resources on our blog or contact us today to schedule a consultation.
