How Tax On Overtime and Tips Really Work

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.