The Treasury Department and the Internal Revenue have issued a new piece of regulatory guidance for workers eligible to claim the recently established deduction for tips and for overtime compensation for tax year 2025.
IRS Notice 2025-69 clarifies for workers how to determine the amount of their deduction without receiving a separate accounting from their employer for cash tips or qualified overtime on information returns such as Form W-2 or Form 1099, which remain unchanged for the current tax year. The notice also provides transition relief to workers who receive tips in the course of a specified service trade or business.
As noted in the announcement, the IRS is in the process of updating income tax forms and instructions for taxpayers in future filing seasons that will assist them in claiming these deductions.
The guidance provides examples to illustrate situations that tipped employees might encounter. In one case study, a restaurant server’s 2025 Form W-2 box 7 reports $18,000 of Social Security tips, and the worker did not report any additional tips on Form 4137. In such a case, the guidance stipulates, the worker may use the $18,000 amount in determining the amount of her qualified tips for tax year 2025.
Multiple examples are also given for overtime deductions. In one case study, a worker receives a payroll statement from his employer that shows $5,000 as the “overtime premium” that he was paid during 2025, as defined under the Fair Labor Standards Act. In such a case, the worker may include $5,000 to determine the amount of qualified overtime compensation received in tax year 2025.
Assuming the same facts as in the prior example, except that the worker’s payroll statement shows a total “overtime” amount of $15,000, the worker may again include the $5,000 FLSA overtime premium, computed by dividing $15,000 by three in determining the amount of qualified overtime compensation for 2025. This computation reflects that overtime compensation is generally paid as "time and a half" over the normal rate.
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