H.R. 1 Tax Benefits Explained

H.R. 1 (One Big Beautiful Bill), passed in the summer of 2025 by Republicans in Congress and signed into law by President Trump, is a significant victory. The bill encompasses various components, but its primary objective is to enable you to prosper by allowing you to retain more of your earnings while right-sizing government programs to eliminate waste, fraud, and abuse.

Below is a description of the bill's two newest provisions: no tax on tips and no tax on overtime. If you worked and received tips or overtime in 2025 but did not adjust your W-2 midway through the year, you may see lower taxes owed or even a nice refund check when you file your 2025 tax returns.

No Tax on Tips (Section 70201)

What qualifies: "Qualified tips" are cash tips (including charged/card tips and tip pooling) received in occupations that "customarily and regularly" received tips on or before December 31, 2024. The IRS has published a list of eligible occupations (e.g., servers, bartenders, delivery drivers in certain roles).

Deduction amount: Up to $25,000 per year (no separate higher limit for joint filers).

Eligibility: Employees and certain self-employed; must be reported on W-2, 1099, or Form 4137.

Phase-out: Reduced by $100 for every $1,000 of modified adjusted gross income (MAGI) over $150,000 (single) or $300,000 (joint).

Exclusions: Not available for self-employed in certain "specified service trades or businesses" (SSTB); service charges (mandatory fees) don't qualify.

2025 transition: Relief for reporting and claiming; employees can use logs if not separately reported.

This effectively eliminates federal income tax on up to $25,000 of qualified tips annually for eligible workers, providing significant tax breaks.

No Tax on Overtime (Section 70202)

What qualifies: Only the premium portion of overtime pay required under the federal Fair Labor Standards Act (FLSA) — typically the "half" in "time-and-a-half" (e.g., if the regular rate is $20/hour and overtime is $30/hour, only the extra $10/hour qualifies).

Deduction amount: Up to $12,500 (single) or $25,000 (joint filers) per year.

Eligibility: Non-exempt employees under FLSA; reported on W-2 or similar.

Phase-out: Same as tips — reduced by $100 for every $1,000 of MAGI over $150,000 (single) or $300,000 (joint).

Exclusions: Does not include full overtime pay (only premium); cannot "double-dip" with tips deduction; salaried exempt workers ineligible.

2025 transition: Employers can use reasonable methods to estimate; penalty relief for reporting.

This means federal income tax is eliminated on the qualified overtime premium up to the caps, further contributing to the overall tax breaks provided by the bill.

These provisions are temporary (expiring after 2028 unless extended) and retroactive to January 1, 2025. For full details, check IRS guidance on irs.gov or consult a tax professional, as forms (e.g., new Schedule 1-A) and W-2 reporting are updating for 2026 filings.