What Your Payroll Reports Reveal About Labor Costs and Profitability
Every pay period, payroll comes due, and a lot of shop owners treat that number like any other bill. They see it, they pay it, and they move on...
What does the IRS really allow when it comes to tax savings on overtime pay and tips?
In this episode of Kaizen Time, Brian Bride, Director of Payroll Operations at YPD, explains how the new tax deductions for overtime and tips work under the One Big Beautiful Bill Act (2025–2028).
You’ll learn:
How the new Schedule 1A form affects 2025 tax returns
Which occupations qualify for the $25,000 tip income deduction
Why only the overtime premium (not base pay) is deductible
How the 40-hour rule limits eligibility in states like California
Why these deductions reduce taxable income, not the tax you owe
Reality check:
These deductions offer modest relief, not major refunds. Workers earning $75k–$100k with consistent overtime or substantial tips will benefit most. For everyone else, it may mean a few hundred dollars back.
If you earn significant tips or overtime, understanding these new rules now can help you stay compliant and make the most of your return.
Only the overtime premium—the extra half of your hourly rate you earn for working beyond 40 hours in a week—is deductible. Your regular hourly wages are not.
This deduction applies to employees in “customarily tipped” occupations such as servers, bartenders, stylists, and barbers. Tips must be reported on your W-2 in box 7 to qualify.
Schedule 1A is a new IRS form beginning with the 2025 tax year. It’s used to report eligible deductions for tip income and overtime premiums, reducing your taxable income at the federal level.
For more tools, articles, and videos, visit the Kaizen + YPD Resources page.
Kaizen CPAs works with auto repair shops across the country. We know running a successful shop takes more than keeping the bays full. We help shop owners understand their numbers, stay ahead of taxes, and build stronger, more profitable businesses. Auto repair is at the heart of what we do, but we bring the same practical, hands-on approach to businesses in other industries, too.
YPD HCM is part of the Kaizen CPAs family. YPD HCM helps small businesses manage payroll, HR, and compliance with the right tools and personal, human support—from payroll and tax filings to onboarding, employee management, and more. It’s practical help for the people side of your business, from a team that’s there when you need them.
The information in this article is provided for general educational purposes and reflects conditions as of the publication date. It is not legal, tax, accounting, payroll, HR, or compliance advice. Every business is different, so talk with a qualified professional about your specific situation.
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