The financial strain caused by federal taxes on tips and overtime pay has long been a burden for service workers and the employers who support them. In a historic bipartisan move, the “One Big Beautiful Bill” has been signed into law, delivering on promises to eliminate federal income tax on tips and overtime.

Zaller Law Group and TipHaus are proud to have supported this effort, advocating for legislation that directly improves the lives of millions of American workers and strengthens the hospitality industry. Here’s what you need to know:

1. A Landmark Win for Workers — and Bipartisan Cooperation

The “No Tax on Tips and Overtime” policy had rare bipartisan momentum:

• Donald Trump, who made it a campaign pledge.
• Kamala Harris, who voiced strong support during her own run.
• President Biden, whose administration confirmed he would sign the legislation if passed.

On Friday, July 5, 2025, the bill was officially signed into law. This is a transformative moment for the hospitality sector, acknowledging the critical role that tipped and overtime-reliant workers play in the U.S. economy.

2. What’s in the Law: How the Deductions Work

 No Tax on Tips

• Workers can now deduct up to $25,000 in tip income above the line on their federal return.
• Applies to tips that are voluntarily paid — not mandatory service charges.
• Available from tax years 2025 through 2028.
• Phases out for individuals earning more than $150,000 (or $300,000 for couples).

 No Tax on Overtime

• Deduction of up to $12,500 per individual, or $25,000 for couples filing jointly.
• Only applies to FLSA-defined overtime — not state-only or contractual OT. Therefore, California’s daily overtime earned for work over eight hours in one day would not be eligible for this tax benefit.
• Follows the same income and time limits as the tips provision.

While state/local taxes and payroll taxes still apply, the federal income tax relief is estimated to save workers thousands annually.

3. Implementation Still in Progress

The IRS and Treasury Department will now begin the process of writing the rules that guide:

• Which jobs and positions are eligible.
• How tips and OT must be reported.
• What counts as a qualified tip or overtime payment under the law.

Employers should be ready to adapt their payroll and reporting systems — and expect further clarification in the coming months.

4. Zaller Law and TipHaus: Supporting the Hospitality Industry

From the beginning, Zaller Law Group and TipHaus have been strong advocates for tax policy that reflects the reality of working in the service sector and are proud to have submitted over 4,000 signatures in support for the no tax on tips and overtime bill. This win represents:

• A culmination of months of engagement with stakeholders and policy leaders.
• Continued legal and payroll support for restaurant operators and hospitality employers.
• A clear opportunity to retain staff, reduce turnover, and attract top talent through a more financially rewarding work environment.

We’re proud to have helped shape the conversation and push for smart reforms.

5.  What’s Next for Employers

While the law offers much-needed relief, it also brings new considerations:

• Reworking W-2 classifications to reflect tip/overtime separation.
• Determining which staff fall within the qualified categories.
• Preparing documentation to support employees who take the new deductions.

As new rules emerge, Zaller Law Group will continue to advise employers on compliance, risk management, and payroll readiness. And TipHaus remains committed to giving operators the tools to track and report tip earnings with clarity and precision.

A Win for Workers, A Boost for Business

The “No Tax on Tips and Overtime” law is not just a political victory — it’s a practical one. It makes the hospitality industry more competitive, puts more money in workers’ pockets, and reflects long-overdue recognition of how these jobs power our economy.

Zaller Law Group and TipHaus will continue to champion forward-thinking solutions that support employers and elevate the employee experience in hospitality.

We would like to thank the over 4,000 people and businesses who signed our petition to support this effort. Your voices helped drive this important change, and we’re honored to have worked alongside you to make it happen.