How to Claim No Tax on Tips and Overtime on Your 2025 Tax Return (Schedule 1-A)
The OBBBA tips and overtime deductions are claimed at tax time on the new IRS Schedule 1-A — not automatically in your paycheck. Here is how the form works and the filing rules that trip people up.
The OBBBA tip and overtime deductions do not happen automatically in your paycheck. You claim them when you file, and for the 2025 tax year the IRS created a brand-new form to do it: Schedule 1-A. Here is exactly how it works.
Quick answer
For tax year 2025 you claim the no-tax-on-tips and no-tax-on-overtime deductions on IRS Schedule 1-A (Additional Deductions), which you attach to Form 1040, 1040-SR, or 1040-NR. You can take them whether you claim the standard deduction or itemize. They are below-the-line deductions: they lower your taxable income but not your adjusted gross income (AGI).
What is Schedule 1-A?
Schedule 1-A, "Additional Deductions," is a new form the IRS introduced for the 2025 filing season to collect the four temporary OBBBA deductions in one place:
- No tax on tips (up to $25,000)
- No tax on overtime (up to $12,500 single / $25,000 married filing jointly)
- No tax on car loan interest
- The extra deduction for seniors
You fill in the parts that apply to you, total them, and carry the combined figure to your Form 1040. The schedule must be filed with your return — without it, the IRS has no record of the deduction.
Where the deductions land on your return — and why it matters
These are below-the-line deductions, meaning they are subtracted after your AGI is calculated. They reduce the income you are taxed on, but they do not reduce your AGI or your modified adjusted gross income (MAGI).
That distinction is not academic. The deduction itself phases out once your MAGI passes $150,000 (single) or $300,000 (married filing jointly). Because the deduction does not lower your MAGI, claiming it cannot pull you back under the phase-out line. If you are near the threshold, read how the income phase-out works before you file.
Step by step: claiming the deductions
- Gather your numbers: qualified tips and the FLSA-required overtime premium for the year. For 2025, you may have to calculate these from your pay stubs (see the transition note below).
- Complete the relevant parts of Schedule 1-A — Part II covers tips; the overtime part walks you through the premium and the phase-out.
- Apply the caps and the MAGI phase-out the instructions describe, so you do not over-claim.
- Carry the combined Schedule 1-A total to the designated line on your Form 1040.
- Attach Schedule 1-A to your return and file. Keep your supporting records for at least three years.
The rules that disqualify people
A few requirements quietly knock taxpayers out of the deduction:
- Married couples must file jointly. If you are married and file separately, you cannot claim either deduction.
- Tips must be reported. Only tips that are reported (to your employer and/or the IRS) qualify.
- You need a valid Social Security number. The deductions require an SSN on the return.
- The income must actually qualify. Service charges are not tips, and pay that is not FLSA-required overtime is not qualified overtime.
Withholding vs. filing — do both
Schedule 1-A is how you claim the deduction at tax time. But you do not have to wait for a refund to feel it. Updating your W-4 now tells your employer to withhold less from each paycheck, so you keep the money during the year instead of lending it to the IRS interest-free. The two work together — see the W-4 adjustment guide and our walkthrough on adjusting your W-4 after OBBBA.
2025 is a transition year
For tax year 2025, payroll systems were not yet built to separate qualified tips and overtime, so the IRS granted penalty relief: employers are not penalized for failing to report those amounts separately on your W-2. Many employers report a "Qualified overtime" figure voluntarily in Box 14, but plenty do not.
The practical effect: for your 2025 return you may need to add up the qualified amounts yourself from your year-end pay stubs. Starting with tax year 2026, W-2s and 1099s will have dedicated reporting for these amounts, and — for overtime specifically — only separately reported amounts will be deductible going forward.
Frequently asked questions
Do I have to itemize to claim these deductions?
No. You can claim the tips and overtime deductions on Schedule 1-A whether you take the standard deduction or itemize. They are separate from Schedule A.
Is the deduction automatic if my W-2 shows the amounts?
No. Even if your employer reports qualified tips or overtime, you still must complete and file Schedule 1-A to claim the deduction. Reporting on the W-2 does not file it for you.
I am married. Can we still claim it if we file separately?
No. Married taxpayers must file a joint return to claim either deduction.
Does claiming the deduction lower my AGI for other tax breaks?
No. It is below-the-line, so it does not reduce AGI or MAGI. Tax breaks tied to AGI or MAGI are unaffected by it.
Where can I get Schedule 1-A?
From the IRS. The form and its instructions are on IRS.gov, and most tax software includes it automatically.
Sources
IRS, Schedule 1-A, Additional Deductions: what to know about the new form; IRS Schedule 1-A (Form 1040) PDF; IRS, penalty relief for 2025 information reporting on tips and overtime.
This article is general information, not tax advice. The figures and rules are estimates based on current IRS guidance and can change. For your situation, consult a qualified tax professional or the IRS directly. Last reviewed June 28, 2026.