With only a few days remaining in the year, we want to share a quick but important tax reminder regarding recent OBBBA changes that highlight new requirements impacting 2025 tax reporting, along with a final reminder on charitable contributions before December 31.
Looking Ahead: New Deductions for Overtime & Tips
Starting with the 2025 tax year, the OBBBA introduces new, temporary deductions aimed at workers who earn overtime and tips:
- Qualified Overtime Compensation
- Deduction of up to $12,500 (single) / $25,000 (joint) per year
- Applies to FLSA-required overtime (generally the “half” in time-and-a-half)
- Phases out for modified AGI over $150,000 / $300,000
- Qualified Tips
- Deduction of up to $25,000 per year
- Available to employees and self-employed individuals in occupations that customarily received tips prior to 2025
- Subject to the same income phaseouts
For 2025 only, the IRS has provided transition reporting relief:
- Employers are not required to separately report qualified overtime or tips on Forms W-2 or 1099
- No penalties apply for 2025, though voluntary reporting (e.g., Box 14 of the W-2 or a separate statement) is encouraged to help employees claim the deduction
This is less about year-end action and more about awareness and planning, particularly for employers, payroll teams, and individuals who may benefit from these deductions.
Last-Minute Reminder: Charitable Contributions Still Matter This Year
While the overtime and tips changes are forward-looking, charitable giving matters TODAY:
- Starting in 2026, individuals will only be able to deduct charitable contributions that exceed 0.5% of AGI
- For 2025, there is no such floor
If charitable giving is already part of your plan, this is a final opportunity to accelerate or “bunch” contributions and potentially receive a more favorable tax result than you will in future years.
Even small, last-minute decisions can make a difference, especially when tax rules are changing.
If you have questions about how these items apply to you or your business, connect with your tax advisor before the year closes.
Sometimes the most important reminders are the last ones.
