Three things almost everyone has wrong
The 2025 tax law created two new deductions that run through 2028: one for qualified tips, one for qualified overtime. They are real money — but the way they were reported has left millions of people expecting the wrong thing.
1. Your paycheck does not get bigger
These are deductions claimed on your tax return, not changes to payroll withholding. Your employer keeps withholding exactly as before. The benefit arrives as a larger refund when you file, in early 2027.
2. Only the premium half of overtime counts
At time-and-a-half, ten overtime hours at $20 an hour pays $300. Only the extra $100 — the half-time premium — is qualified overtime compensation. The other $200 is ordinary wages. Get this wrong and you will overestimate your deduction by three times.
3. “No tax on tips” is not no tax
Social Security and Medicare still come out of every tipped dollar, at 7.65% combined. The deduction is against federal income tax only, and most states do not follow it at all, so your state tax usually does not change either.
Read the guides for how each rule works, who qualifies, and what your employer has to put on your W-2.