In 2025, Congress passed legislation that affects employees who receive tips or overtime as part of their compensation. Specifically, it allows employees who earn less than $150,000 per year to deduct up to $25,000 in qualified tips and up to $12,500 in qualified overtime from their taxable income when filing their 2025 personal income tax return.

These deductions are claimed on the employee’s personal income tax return. To determine the correct amounts, employees will use different records for each type of deduction.

For tipped employees, Form W-2 for 2025 may be used. Box 7 shows Social Security tips, which can help determine the amount of qualified tips. In some cases, employees may also use their final pay stub or other employer records. Employees should follow the IRS form instructions for details.

For the overtime deduction, employees should refer to their final pay stub(s) from each employer they worked for in 2025 to determine the amount of qualified overtime pay. IRS instructions explain how to calculate the deductible amount.

Overtime will not be reported separately on 2025 W-2s because the IRS has not yet updated the form. As a result, employees will need to use their pay stubs or other records when preparing their tax return. Employees should contact their tax preparer with any questions about claiming these deductions.