Frequently Asked Questions
The most common questions about the OBBBA tip and overtime deductions, answered accurately.
FICA
Does the OBBBA eliminate FICA taxes on tips and overtime?
No. The OBBBA creates a federal income tax deduction — it does not affect Social Security (6.2%) or Medicare (1.45%) taxes. Your employer will continue to withhold FICA on all tip and overtime income.
Overtime
What is the overtime "premium" — am I deducting my whole overtime paycheck?
No. The deduction covers only the premium portion — the extra 0.5× that takes your rate from 1× to 1.5×. If your regular rate is $20/hr and you work 100 OT hours, you deduct 100 × $10 = $1,000 (the premium), not the full $3,000 overtime paycheck.
Does the overtime deduction apply to all workers who work more than 40 hours?
No. The deduction only applies to overtime required by the Fair Labor Standards Act (FLSA). Salaried employees classified as FLSA-exempt (most managers and professionals) do not qualify even if they receive extra pay for long hours.
State Taxes
Does my state also exempt tips and overtime from state income tax?
Most states have not yet conformed to the OBBBA. Nine states have no income tax at all (FL, TX, WA, NV, AK, SD, WY, TN, NH). A small number of states have passed conformity legislation. Check the State Conformity Tracker for current status.
W-4
How do I reduce withholding on my paycheck right now?
Update your W-4 with your employer. On Line 4b (Deductions), enter your estimated annual OBBBA deduction amount. This tells your employer to withhold less each pay period. The calculator gives you the exact Line 4b amount.
General
When does the OBBBA tip and overtime deduction expire?
The deductions are currently scheduled to expire after tax year 2028 unless Congress extends them. They apply to tax years 2025, 2026, 2027, and 2028.
Tips
Do mandatory service charges (auto-gratuity) qualify as tips?
No. Mandatory service charges are classified as wages by the IRS, not tips, and do not qualify for the OBBBA tip deduction. Only voluntary tips paid by customers qualify.
Self-Employed
I am self-employed and receive tips. Do I qualify?
Yes, self-employed workers in IRS-designated tipped occupations may qualify. However, the deduction cannot exceed your net income from the business where the tips were earned.