How Much Will You Save With the New Tax Laws?

What Is the OBBBA and Why Does It Matter?

The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, delivers the largest tax relief for American working-class workers in decades. Two provisions are most impactful for the roughly 4 million tipped workers and 18 million overtime-eligible employees in the United States:

• No Tax on Tips (2025–2028) — Tip income is now 100% deductible from federal income tax. This applies to restaurant servers, bartenders, hotel staff, delivery drivers, rideshare drivers, hair stylists, valets, casino dealers, and anyone who customarily receives tips. The benefit applies to workers earning under $160,000 per year in total income.
• No Tax on Overtime (2025–2028) — Pay for hours worked beyond 40 per week is now federally tax-exempt for hourly (non-exempt) workers covered by the Fair Labor Standards Act (FLSA). Whether you earn time-and-a-half or double-time, that overtime premium is no longer counted in your federal taxable income.

Both provisions are temporary, running from tax years 2025 through 2028. Congress may extend them — but right now, every tipped and overtime worker in America has a window to dramatically increase their take-home pay.

How Much Can You Actually Save?

The answer depends on how much tip or overtime income you earn and which federal tax bracket you fall into. Here are three real-world examples:

Use our no tax on tips calculator or no tax on overtime calculator to see your personalized number — by state, income level, and hours worked.

What Changed in 2025–2026?

No Tax on Tips — Key Details

• Tips are now 100% exempt from federal income tax
• Applies to cash tips, credit card tips, and tip pool distributions
• Income limit: workers earning under $160,000/year total
• FICA taxes (Social Security 6.2% + Medicare 1.45%) still apply
• You must still report all tips — the exemption is a deduction on Form 1040
• Effective for tax years 2025 through 2028

No Tax on Overtime — Key Details

• Overtime pay (hours over 40/week) is exempt from federal income tax
• Applies to hourly workers covered by the Fair Labor Standards Act (FLSA)
• Covers time-and-a-half (1.5x) and double-time (2x) pay
• FICA taxes still apply to overtime pay
• Salaried exempt employees generally do not qualify
• Effective for tax years 2025 through 2028

Who Benefits Most From These New Laws?

The tip and overtime tax exemptions are designed specifically for America's working class — people who rely on variable income like tips and who routinely work more than 40 hours a week. The biggest winners include:

• Restaurant servers and food service workers — Tip income often equals or exceeds base wages. A server earning $25–40/hour in tips on a $8 base wage can save thousands per year. See our restaurant server tax savings guide.
• Bartenders — Among the highest tip earners in the service industry, with experienced bartenders often pulling $50,000+ per year in tips alone. Our bartender tip tax calculator shows the full picture.
• Delivery and rideshare drivers — DoorDash, Uber Eats, Instacart, Uber, and Lyft drivers qualify for the tip exemption on customer tips. See our delivery driver tip exemption guide.
• Hair stylists, barbers, and nail technicians — Personal care professionals earn consistent tip income that is now federally tax-exempt. Check the hair stylist tip tax calculator.
• Hotel and hospitality workers — Housekeepers, bellhops, valets, and concierge staff all earn tips that qualify. Read the hotel staff OBBBA guide.
• Nurses and healthcare workers — Hourly nurses who work 12-hour shifts routinely log significant overtime. Our overtime tax savings calculator shows exactly how much you keep.
• Casino dealers and gaming workers — Tips from players are a major income component and now fully tax-exempt federally.
• Construction and manufacturing workers — Overtime is common in these industries, and the FLSA-covered hourly workforce benefits significantly.

Frequently Asked Questions

Are tips completely tax-free now?

Tips are exempt from federal income tax, but you still pay FICA taxes (Social Security at 6.2% and Medicare at 1.45%). State income taxes may still apply depending on your state — workers in Texas, Florida, Nevada, and 6 other no-income-tax states get the full benefit without state tax complications. See the full OBBBA FAQ for more detail.

Do I still need to report my tips?

Yes. You must still report all tip income to your employer and on your tax return. The exemption is applied as a deduction on Form 1040 — not by omitting the income. Good record-keeping protects you if audited.

Is there an income limit?

Yes. The tip tax exemption applies to workers with total annual income under $160,000. The overtime exemption has similar income limitations. Workers near this threshold should consult a tax professional.

How long does this last?

Both provisions are set for tax years 2025 through 2028. Congress may extend them, but that requires new legislation. Use this window — it's real money now.

Calculate by Your State

State taxes vary significantly. Workers in no-income-tax states get the maximum benefit, while those in high-tax states like California or New York still save on the federal portion. Select your state in either calculator for accurate results, or browse our Texas, Florida, California, New York, and Ohio state-specific calculators.

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