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Podcast: ‘No Tax On Tips’ Explained

A new federal law passed through the One Big Beautiful Bill allows eligible U.S. workers to claim deductions on tips and overtime pay, but it’s not a full tax exemption and comes with income limits and caps—$12,500 for individuals and $25,000 for joint filers. Only voluntary tips qualify, and the law applies solely to federal overtime, not state or union-negotiated pay, creating complex compliance challenges for employers. With the law taking effect retroactively on January 1, experts urge hospitality employers to educate workers, update payroll systems, and manage expectations as they navigate the new rules.