Overtime and Tip Income Deductions

New federal tax changes could affect clients who receive overtime pay or tips. It’s important to note that these updates apply to federal income tax filings only. Oklahoma state tax treatment has not changed, per recent confirmation from the Oklahoma Tax Commission. 

OSCPA member Josh Mullins, CPA, of Arledge & Associates, recently shared insight on how these changes may impact 2025 federal returns. Included in the One Big Beautiful Bill Act (H.R. 1), legislation allows taxpayers to deduct a portion of overtime earnings as well as reported tip income.

For employees paid time-and-a-half, only the premium portion of overtime qualifies. For example, if a taxpayer earns $3,000 in overtime at time-and-a-half, $1,000 would represent the deductible amount. 

The legislation also allows a federal deduction for reported tip income, whether received in cash or electronically. As Mullins noted, tip income must be properly reported in order to claim the deduction.

The overtime deduction is capped at $12,500, and the tip deduction is capped at $25,000. Income limitations apply, so eligibility will depend on overall compensation.

We encourage members to review wage statements carefully and remind clients of these updates.