Millions of U.S. workers who earn tips and overtime pay may be eligible for a federal tax break when they file their 2025 income taxes next year. But which workers will qualify for the new deductions is among the details the government has to work out.
Under the bill Trump signed into law on July 4, the U.S. Treasury Department must publish a list by Oct. 2 of occupations that qualify for tax-free tips. The department is also expected to publish guidance on how to report tips and overtime pay, and what documentation will be required.
The deduction provisions are not permanent but were written to expire after the 2028 tax year.
Overtime pay isn't currently separated out on an employee's W-2 tax form, for example, but employers generally keep track of it and itemize it on employees' pay stubs, said Miguel Burgos, a certified public accountant with TurboTax.
Starting this year, workers can deduct up $12,500 in overtime. Joint filers can deduct up to $25,000.
The deduction phases out at $150,000 for single filers and $300,000 for joint filers For many people, it could be a nice break.
"That's a big deal for people making this kind of income, although, again, it is income limited," said Kate Ashford with Nerd Wallet.
Remember, the deduction is only for the half portion of time-and-a-half pay. The deduction kicks in for 2025.
The new spending bill also allows you to deduct up to $25,000 in tips beginning this year.
7 On Your Side explains 'no tax on tips' change
The deduction is available for those who itemize and those who don't, but if you make more than $150,000, it phases out.
A lot of people who get tips currently don't report them.
"This is also going to require people to have to declare tips, and not everyone is declaring the cash tips they're making, so this will be an interesting thing to put into place," said Ashford.
It's not for everyone seeing as to you really have to crunch the numbers to see if the "no tax on tips" will help you.
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ABC News contributed to this report.