Tips, Overtime, and Tax-Free Income? Yes—For Now

If you or someone in your household earns tips, works overtime, or is in a service role, this one’s worth a closer look.

Thanks to the OBBB, from 2025 through 2028, you may be able to deduct up to $25,000 in tip income and $12,500 in overtime pay—or $25,000 total for married couples—from your federal taxable income. That means you could owe zero federal income tax on a significant chunk of your paycheck.

This is especially impactful for:

• Service workers in hospitality, delivery, or personal care

• Employees with variable pay structures or shift work

• Adult children or grandchildren who are just getting started in the workforce

It’s important to note that this deduction doesn’t eliminate payroll taxes, so Social Security and Medicare will still apply. And if your adjusted gross income exceeds $150,000 (or $300,000 for joint filers), the benefit begins to phase out.

What This Means:

For many working families, this could lead to meaningful tax savings over the next few years—if you plan ahead. This is a great opportunity to:

• Re-evaluate W-2 income strategies

• Check eligibility based on income thresholds

• Consider how this might affect household budgeting or savings plans

This provision won’t be around forever, and it may be especially beneficial for younger earners or multigenerational planning.

👉 Want to see if this deduction applies to you or someone in your family? Let’s run the numbers together. Grab a spot on my calendar.

This article is for informational purposes only and not tax advice. Always consult your tax preparer for guidance specific to your situation.

LynnLeigh & Company - A Registered Investment Advisor This information is provided by LynnLeigh & Co. for general information and educational purposes based upon publicly available information from sources believed to be reliable – LynnLeigh & Co. advisors cannot assure the accuracy or completeness of these materials. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.   Past performance is not a guarantee of future returns.

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