How to Claim the OBBBA Tips & Overtime Deduction
Knowing your deduction amount is one thing — actually claiming it on your return is another. Here's the process, what to keep, and where people get it wrong.
By Sharon Ben-Moshe · Last reviewed July 4, 2026
Quick answer
The IRS introduced Schedule 1-A (Form 1040), "Additional Adjustments to Income," to handle the new OBBBA deductions — including tips and overtime — starting with tax year 2025 returns. You report your qualified tip and overtime premium income there; the deduction reduces your taxable income above-the-line, so you don't need to itemize. Always confirm the exact line numbers against the current tax year's official IRS instructions before filing, since forms can be revised year to year.
Step by step
- 1. Gather your income records. For W-2 tipped or overtime work, that's your W-2 and any pay stubs that separately show reported tips and the overtime premium (not just total overtime pay). For self-employed tipped work, that's your 1099s and your own income/expense records.
- 2. Calculate your deduction. Use our calculator to apply the caps and the MAGI phase-out and get your exact net deduction.
- 3. Report it on Schedule 1-A.The deduction is entered as an adjustment to income, then carried to your Form 1040. It reduces your taxable income before your standard or itemized deduction — you don't give up the standard deduction to claim it.
- 4. Keep your records. Hold onto your W-2s, 1099s, and any pay stubs or logs showing the tip/overtime breakdown for at least three years in case of an IRS inquiry.
What to keep, by worker type
W-2 tipped or overtime workers
- Your W-2 (reported tip income should be reflected here)
- Pay stubs showing the overtime premium separately from regular pay
- Any tip-reporting records you gave your employer
Self-employed tipped workers
- 1099s from platforms or clients
- Your own tip log or app-reported tip totals
- Business expense records (needed for the net-income cap)
Common mistakes when claiming it
- Claiming the full overtime paycheck instead of just the premium portion
- Including mandatory service charges or auto-gratuity as tips
- Self-employed filers deducting more than their net business income
- Forgetting the deduction doesn't reduce FICA — only federal income tax
- Not checking whether your state also conforms — see the State Conformity Tracker
A note on precision:exact form and line numbers can change between tax years as the IRS finalizes instructions. This page describes the general mechanism (an above-the-line adjustment to income); confirm the specific form and line for the tax year you're filing against the official instructions at IRS.gov, or with a tax professional, before you file.