When Does No Tax on Tips End? The 2025-2028 OBBBA Sunset Explained
No tax on tips and overtime is not permanent. Both OBBBA deductions run for tax years 2025 through 2028 and are scheduled to expire after that unless Congress extends them. Here is the timeline.
"No tax on tips" and "no tax on overtime" sound permanent. They are not. Both deductions come with an expiration date built into the law, and knowing the window helps you make the most of it.
Quick answer
The OBBBA tips and overtime deductions are temporary. They apply for tax years 2025, 2026, 2027, and 2028, and are scheduled to expire after 2028 unless Congress passes an extension. That is a four-year window.
Is no tax on tips permanent?
No. The One Big Beautiful Bill Act was signed into law on July 4, 2025, and it wrote these deductions as time-limited provisions. Like many tax cuts, they were given a sunset date to limit the long-run cost. Unless lawmakers act before then, the deductions end with the 2028 tax year.
The four-year window
Here is the timeline to keep in mind:
- Tax year 2025: first year the deductions are available; claimed on returns filed in early 2026 using Schedule 1-A.
- Tax years 2026 and 2027: fully available, with cleaner W-2 and 1099 reporting than the 2025 transition year.
- Tax year 2028: final scheduled year of the deductions.
- Tax year 2029 onward: deductions expire unless Congress extends them — tips and overtime would again be fully subject to federal income tax.
What expiring would mean for your paycheck
During the window, eligible workers can deduct up to $25,000 of qualified tips and up to $12,500 ($25,000 married filing jointly) of overtime premium from federal taxable income. If the provisions sunset after 2028, that deduction disappears: the same tips and overtime would once again be taxed at your ordinary federal income-tax rate. Nothing about FICA changes either way — Social Security and Medicare taxes apply throughout, sunset or not.
How to make the most of the four years
- Claim it every eligible year. Do not leave 2025 on the table — file Schedule 1-A even if your employer did not separate the amounts on your W-2.
- Update your W-4 so you keep the savings in each paycheck instead of waiting for a refund. See the W-4 guide below.
- Watch the phase-out. The deduction shrinks above $150,000 MAGI (single) or $300,000 (married filing jointly); a raise or a second income can erode it.
- Keep clean tip and overtime records each year — they protect the deduction if you are ever asked to substantiate it.
- Track your state. A federal deduction does not mean a state one; some states may conform during the window.
Put your own numbers through the savings calculator, then lock in the paycheck benefit with the W-4 adjustment guide.
Will Congress extend it?
No one can say. Temporary tax provisions are sometimes extended and sometimes allowed to lapse, and it depends on the politics and budget math closer to 2028. The safe planning assumption is that the deduction ends on schedule. If an extension passes, that is a bonus — but do not build a multi-year budget around money that is currently set to expire.
Frequently asked questions
What years does no tax on tips cover?
Tax years 2025 through 2028 — four years — after which the deduction is scheduled to expire.
When was the law passed?
The One Big Beautiful Bill Act was signed into law on July 4, 2025.
Does the same sunset apply to no tax on overtime?
Yes. The overtime premium deduction runs on the same 2025-2028 schedule and expires after 2028 unless extended.
If it expires, will my past deductions be clawed back?
No. Expiration is forward-looking. Deductions you properly claimed for 2025 through 2028 stand; you simply cannot claim them for years after the sunset.
Should I rush to earn more tips or overtime before 2028?
Earn what makes sense for you — but do claim the deduction in every year you qualify, and mind the income phase-out so a higher income does not quietly reduce it.
Sources
IRS, One Big Beautiful Bill Act: tax deductions for working Americans and seniors; IRS, One Big Beautiful Bill: how to take advantage of no tax 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.