Document checklist for the tips and overtime deductions

IRS FS-2025-03 describes qualified tips as voluntary cash or charged tips received from customers or through tip sharing, in an occupation the IRS lists as customarily receiving tips on or before December 31, 2024. The tips must be reported on a Form W-2, Form 1099 or other specified statement, or reported directly on Form 4137.

For 2025, IR-2025-114 shows workers using tips reported to their employer on Forms 4070, unreported tips from Form 4137, and, for the self-employed, daily tip logs that substantiate the amount.

Only pay above the regular rate that the Fair Labor Standards Act requires counts, such as the half in time-and-a-half. For 2025, IR-2025-114 gives examples: use the premium if a payroll statement shows it, or divide total time-and-a-half overtime pay by 3 to find it.

Both deductions require the taxpayer’s SSN and, for married taxpayers, a joint return.

The IRS waived penalties for 2025 on employers that did not separately report tips, tipped occupations or overtime, and said the relief covered 2025 only. For employer clients whose payroll runs through their books, set up separate pay items for tips and overtime now.