What 2025 tax benefits came from Congress’ One Big Beautiful Bill
The One Big Beautiful Bill has created several new tax benefits. A few are listed here. Most are straight forward. However the “No Tax on Tips” and “No Tax on Overtime” may be confusing. The IRS has approved the following examples to assist both tax preparers and tax payers in understanding them. The professionals at the AARP TaxAide office in Prescott can further assist you.
Increased Standard Deduction:
- $15,750 Single
- $31,500 Married Filing Joint
Temporary Deductions for Seniors (In place of No Tax on Social Security):
- $6,000 for taxpayers over 65 (with some exceptions)
Increased Child Tax Credit:
- $2,200
No Tax on Tips:
Example 1. Susan is a restaurant server. The amount reported in Susan’s Form W-2 box 7 is $18,000 of social security tips. Susan did not report any additional tips on Form 4137. Susan may use $18,000 in determining the amount of qualified tips for tax year 2025.
Example 2. Antonio is a bartender. During tax year 2025, Antonio reports $20,000 in tips to Antonio’s employer on Form 4070. Antonio’s 2025 Form W-2 reports $200,000 in box 1, an amount in excess of the social security wage base, and $15,000 in box 7. Additionally, Antyonio reports $4,000 of unreported tips on Form 4137, line 4, and includes this amount in income on Antonio’s Form 1040. Antonio may use either the $15,000 in box 7 of the Form W-2, or the $20,000 of tips reported to Antonio’s employer on Forms 4070 in determining the amount of qualified tips for tax year 2025. Regardless of the option chosen, Antonio may also include the $4,000 of unreported tips from Form 4137, line 4, in determining the amount of qualified tips.
Example 3. MaryAnn is a self-employed travel guide who operates as a sole proprietor. In 2025, MaryAnn receives $7,000 in tips from customers paid through a third-party settlement organization as defined in section 6050W(b)(3). For tax year 2025, MaryAnn receives a Form 1099-K from an online booking platform that is a third-party settlement organization as defined in section 6050W(b)(3) showing $55,000 of total payments. The Form 1099-K does not separately identify the tips. However, MaryAnn keeps a log of each tour that shows the date, customer, and tip amount received. Because MaryAnn has daily tip logs substantiating the $7,000 tip amount, MaryAnn may use the $7,000 tip amount in determining qualified tips for tax year 2025
No Tax on Overtime:
If your normal hourly wage is $20 per hour and you are paid 1 1/2 times for overtime, only the additional $10 per hour is not taxed. The regular $20 per hour, regardless of the number of hours worked, is taxed. See Example 2.
Example 1. Tina has access to a payroll system that shows totals of amounts paid to Tina in 2025, including the Federal Labor Standards Act (FLSA) Overtime Premium paid during 2025. In 2025, Tina is last paid wages on December 22, 2025, for the payroll period beginning on November 30, 2025, and ending on December 13, 2025. The payroll system shows $5,000 as the “overtime premium” that Tina was paid during 2025. For purposes of determining the amount of qualified overtime compensation received in tax year 2025, Tina may include $5,000 (the FLSA Overtime Premium).
Example 2. Assume the same facts as in example 1 except that Tina’s pay stub, shows a total “overtime” amount of $15,000 (which is the FLSA Overtime Premium combined with the portion of the individual’s regular wages for the hours worked over 40 in a workweek). For purposes of determining the amount of qualified overtime compensation received in tax year 2025, the individual may include $5,000 (the FLSA Overtime Premium, computed by dividing $15,000 by 3).
Example 3. Richard’s employer has a practice of paying overtime at a rate of two times an employee’s regular rate of pay and Richard was paid $20,000 in overtime pay under that practice, although 29 USC § 207 only requires Richard’s employer to pay at one and one-half times the employee’s regular rate. Richard’s last pay stub for 2025 shows “overtime premium” of $10,000 paid in 2025 (which is Richard’s overtime premium paid at a rate of two times the individual’s regular rate). For purposes of determining the amount of qualified overtime compensation received in tax year 2025, Richard may include $5,000 ($10,000 divided by 2).
Example 4. Assume the same facts as in example 3 except that Richard’s pay stub shows a total “overtime” amount of $20,000 (which is Richard’s overtime premium paid at a rate of two times the individual’s regular rate of pay combined with the portion of the individual’s regular wages for the hours worked over 40 in a workweek). For purposes of determining the amount of qualified overtime compensation received in tax year 2025, Richard may include $5,000 (the FLSA Overtime Premium, computed by dividing $20,000 by 4).
Example 5. Pedro works in law enforcement and is paid $15,000 of total annual overtime pay on a “work period” basis of 14 days that complies with section 207(k) of the FLSA.22 For purposes of determining the amount of qualified overtime compensation received in tax year 2025, Pedro may include $5,000 ($15,000 divided by 3).
Example 6. Elizabeth works for a State or local government agency that gives compensatory time at a rate of one and one-half hours for each overtime hour worked under 29 USC 207(o). In 2025, Eliabeth was paid wages of $4,500 with respect to compensatory time off taken in accordance with section 207(o). For purposes of determining the amount of qualified overtime compensation received in tax year 2025, Elizabeth may include $1,500, one-third of these wages for purposes of determining qualified overtime compensation under section 225(c).