Stay Ahead of Tax Law Changes: Learn about the One Big Beautiful Bill

One Big Beautiful Bill: New Tipping & Overtime Income Exemption

The One Big Beautiful Bill (OBBB) includes a unique, temporary provision that could put more money directly into the pockets of workers in industries that rely heavily on tips and overtime pay.

If you work in restaurants, hospitality, healthcare, retail, or other fields where extra income often comes from tips or overtime, this change could mean a meaningful tax break—but only for a few years.

How the New Exemption Works

From 2026 through 2028, certain tips and overtime earnings will be exempt from federal income tax—up to a specific dollar limit.

  • Tipped income: Up to $25,000 per year can be exempt.
  • Overtime pay:
    • Single filers: Up to $12,500
    • Married filing jointly: Up to $25,000

Who Qualifies?

You must meet two main requirements:

  1. Income Limits
  • Single filers: Modified AGI under $150,000.
  • Married filing jointly: Modified AGI under $300,000.
  1. Income Source
  • The exempt amount applies only to tips or overtime pay from your employer.
  • Self-employed income, bonuses, or commissions do not qualify under this provision.

What Counts as “Tips” and “Overtime”?

Tips:

  • Cash tips received directly from customers.
  • Tips received through tip pooling or splitting.
  • Charged tips from credit or debit card transactions.

Overtime:

  • Pay for hours worked over the standard 40-hour workweek (or applicable daily overtime limits in your state).

Why This Matters

For workers in qualifying industries, this is essentially tax-free extra income—up to the limits.

Example:
 A single restaurant server earning $18,000 in reported tips and $8,000 in overtime in 2026 could exclude the entire amount from taxable income (since both amounts are under the respective limits and AGI is below $150,000).

If they are in the 22% federal bracket, that could mean over $5,700 in tax savings in a single year.

Key Considerations & Planning Tips

  • Accurate Reporting Is Critical: Even though these earnings may be tax-exempt, they still need to be reported properly on your tax return.
  • Watch the Income Limits: If your AGI creeps over $150,000 (single) or $300,000 (joint), you lose the exemption.
  • Three-Year Window: This provision only applies from 2026 to 2028—there’s no guarantee it will be extended.
  • Employer Coordination: Employers must still withhold Social Security and Medicare taxes on tips and overtime—only federal income tax is affected.
  • Keep Documentation: Maintain records of tip income, overtime hours, and employer pay statements in case of IRS inquiry.

Who Benefits Most?

Restaurant & Hospitality Workers

Servers, bartenders, hotel staff, and delivery drivers who earn a significant portion of their income in tips.

Healthcare & Skilled Trade Workers

Nurses, EMTs, factory workers, and other professionals who regularly work overtime shifts.

Retail & Seasonal Workers

Holiday season or busy-period workers who log extra hours.

Final Takeaway

The OBBB’s tipping and overtime exemption is a targeted, temporary benefit aimed at rewarding workers who put in extra time or earn through customer service tips. For eligible taxpayers, it’s a rare opportunity to receive part of your income entirely free from federal income tax.

If you expect to earn tips or overtime during 2026–2028, planning ahead could help you maximize the benefit before it disappears.

Want to make sure you’re ready to claim this exemption when it starts?

📖 Read more about the OBBB: molentax.com/obbb-webinar-series/#blogs
 🎓 Attend a free webinar: molentax.com/obbb-webinar-series/#register
 📅 Schedule a 1-on-1 consultation: molentax.com/contact

 

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

Quarterly Estimated Taxes & Withholding Checkup: How to Avoid Penalties and Take Control of Your Cash Flow

When it comes to managing taxes, one of the most common struggles individuals and business owners face is knowing how much to pay and when. Waiting until April 15 to find out you owe thousands of dollars can be stressful — and costly. The good news? With some...

Franchise Tax in Texas: What It Is, Who Pays, and When

Understanding the Texas Franchise Tax Texas doesn’t impose a state income tax, but it does require many businesses to pay a franchise tax—a tax on the privilege of doing business in the state. It applies to most business entities, including corporations, LLCs, and...

Common Bookkeeping Mistakes Small Businesses Make (and How to Fix Them)

Why Bookkeeping Mistakes Small Businesses Matters Accurate bookkeeping is the backbone of every successful business. It keeps your financial data organized, supports your tax filings, and helps you make informed decisions. Yet many small business owners fall into the...

 Corporation Tax Preparation: A Step-by-Step Guide for Business Owners

What is a C Corporation? A C Corporation (C Corp) is a legal entity that is separate from its owners. It offers liability protection to shareholders and has a structured management system. Unlike other business entities, a C Corp is subject to corporate income tax and...

What’s the Difference Between a Bookkeeper and an Accountant?

Understanding Bookkeeping and Accounting For many business owners, the terms “bookkeeper” and “accountant” are used interchangeably. However, they represent two distinct roles in the financial health of your business. While both are essential, they serve different...

One Big Beautiful Bill: High-Income Phaseouts You Need to Know

The One Big Beautiful Bill (OBBB) delivers tax relief across many income levels, but for higher earners, some benefits phase out as income climbs. These phaseouts gradually reduce or eliminate valuable deductions and credits once your adjusted gross income (AGI)...

One Big Beautiful Bill: Clean Energy and “Green” Tax Credits You Can Use

The One Big Beautiful Bill (OBBB) didn’t just change income tax brackets and deductions—it also continued and expanded several clean energy and environmentally focused tax incentives. These credits reward taxpayers who make energy-efficient upgrades, invest in...

How the OBBB Tax Bill Could Save a Texas Family Thousands in 2025

(A Before & After Story) When the One Big Beautiful Bill (OBBB) passed, many families wondered what it might mean for their taxes in real life. Let’s walk through a fictional example that might sound a lot like someone you know — maybe even you. Meet Jake and...

How to Correctly Pay Yourself and Take Cash from Your Business

As a small business owner, one of the most common questions you might have is: “How should I pay myself?” The answer isn’t always straightforward because it depends heavily on your business structure and tax situation. Whether you're aiming to maximize tax deductions,...

Estate & Gift Planning – What’s Changing Under the One Big Beautiful Bill (OBBB)

The One Big Beautiful Bill (OBBB) brings several important changes for individuals and families looking to transfer wealth, reduce estate taxes, and protect assets for future generations. Whether you’re planning modest gifts to family or multi-million-dollar legacy...

Request an Appointment Today

14 + 5 =

Call us at

Share This