Servers, bartenders, delivery drivers and hourly employees planning to claim one of two new deductions on a 2025 tax return are running into an unfamiliar problem: the dollar figure the deduction depends on will not be sitting in a labeled box on this year’s Form W-2. The qualified tips deduction and the qualified overtime deduction, both created by the One, Big, Beautiful Bill, reduce taxable income for tax years 2025 through 2028, but for the 2025 tax year the employer’s wage statement will not separate either amount out on its own. That leaves a gap between what the deduction requires and what the form supplies. The number has to come from somewhere else, and the Internal Revenue Service has been specific about where.
The Qualified Tips and Overtime Deductions on Schedule 1-A
Both deductions are new for the 2025 tax year and are claimed on Schedule 1-A, a form the IRS built specifically for the One, Big, Beautiful Bill’s temporary write-offs. Schedule 1-A attaches to Form 1040, Form 1040-SR or Form 1040-NR, and the total from its line 38 carries over to Form 1040, line 13b (line 13b on Form 1040-SR, line 13c on Form 1040-NR). The 2025 Schedule 1-A places the tips deduction in Part II and the overtime deduction in Part III, alongside separate parts for car-loan interest and a deduction for seniors. Both the tips and overtime deductions are available whether a filer itemizes or takes the standard deduction, and both are scheduled to expire after the 2028 tax year. This is the first filing season either line has existed, so there is no prior version of Schedule 1-A a filer can look back at for comparison, and no prior W-2 habit that already accounts for it.
What a stalled refund actually means: Each status message and each notice points to a different cause, and each cause has its own next step. Read the notice decoder in The IRS Refund Recovery Kit.
Why the 2025 Form Won’t Show the Split
The gap is not an oversight. In Fact Sheet FS-2026-05, issued in March 2026, the IRS states plainly that “Forms W-2 and Forms 1099 will not separately report qualified tip amounts for 2025, so it will be important to maintain accurate records that support the amounts claimed on the return.” The fact sheet adds a further condition: only tips that were voluntarily given or paid, and for which the taxpayer has records, generally qualify for the deduction at all. The same reporting gap applies to overtime pay. In a companion set of frequently asked questions, the IRS confirms that “For tax year 2025, employers and other payers are not required to report qualified overtime compensation separately on Forms W-2, 1099-NEC, and 1099-MISC,” a limitation the agency traces to Notice 2025-62. Some employers may choose to add the figure in Box 14 of the W-2 or send it through a payroll portal, but nothing requires them to. A worker who does not get that breakout from an employer is directed instead to calculate the qualified amount independently, according to the agency’s published guidance.
The Records the IRS Will Accept in Place of a W-2 Line
For the tips deduction, the fact sheet names specific kinds of acceptable proof: daily or weekly tip logs, employer reports, point-of-sale summaries and invoices. A worker who held more than one tipped job during 2025, or who works for multiple clients as an independent contractor, needs a separate set of those records for each employer or customer. For the overtime deduction, the accepted substitute is narrower: pay stubs or payroll summaries that show the overtime actually paid, again gathered separately from each employer if the worker changed jobs during the year. Neither list is optional paperwork. Without it, a filer has no way to substantiate the figure entered on Schedule 1-A if the IRS asks, and a deduction claimed without matching documentation is the kind of entry that a mismatch between an employer’s totals and a taxpayer’s return tends to surface later.
What Actually Counts as “Qualified” Overtime
The overtime deduction does not cover every extra hour on a pay stub. It reaches only overtime compensation required under section 7 of the Fair Labor Standards Act (29 U.S.C. § 207), and even then, only part of it, the IRS’s overtime FAQ explains. If an employee is paid one and one-half times a regular rate for an hour of overtime, the IRS treats only the extra half above the regular rate as qualified overtime compensation; the base portion of that hour is ordinary wages, already taxed as such. An employee exempt from the FLSA’s overtime requirement, or one whose employer voluntarily pays more overtime than federal law requires, does not generate qualified overtime compensation for the deduction, regardless of what the pay stub itself calls it. The deduction itself is capped at $12,500 of qualified overtime compensation per return, or $25,000 on a joint return, and phases down once modified adjusted gross income passes $150,000 for a single filer or $300,000 for joint filers, according to the same IRS guidance.
Self-Employed Workers and Multiple Employers Face a Longer List
Independent contractors who received tips or worked qualifying overtime-equivalent hours face additional documentation. The fact sheet directs self-employed filers to Schedules C, E and F, to lines 15 through 17 of Schedule 1, and to Form 1099-NEC, Form 1099-MISC or Form 1099-K, depending on how they were paid. A taxpayer also needs a Social Security number valid for employment to claim either deduction, and married filers generally must file a joint return if both spouses want to claim the overtime deduction on their own qualifying pay, with both spouses’ Social Security numbers listed on the return. None of these requirements are waived because the W-2 arrives without the number already sorted out, and a filer who assumes the form will catch up later has no such backstop this year.
Records the Worker Has to Keep
A return that claims either deduction without records to match often is exactly the kind the IRS flags for review, since a gap between the amount entered on Schedule 1-A and what an employer’s forms show can be enough to trigger a notice or hold up a refund. When that happens, the notice itself tends to arrive in IRS shorthand that does not explain the next step, and the refund clock keeps running while a filer works out what documentation is missing.
The IRS Refund Recovery Kit is a 13-page kit built around a notice decoder for translating that kind of correspondence and the refund-trace steps for filing Form 3911 when a refund stalls or goes missing.
See the notice decoder and the refund-trace steps in The IRS Refund Recovery Kit.
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