Certified Expert in Business and Commercial Lending
Olivia Chen is a certified commercial lending expert and experienced financial writer with a passion for helping consumers and small-business owners navigate the complex world of finance. For over five years, she has guided readers through personal and business financial decisions at major platforms like NerdWallet and Bankrate. Her work has appeared in The Associated Press, The Washington Post, and NASDAQ, among other publications. She is certified in business and commercial lending through the American Bankers Association. In her free time she enjoys travel, attending live sporting events, and writing fiction.
Key takeaways
Middle-income families, tipped income workers, filers over 65, and workers who rely on overtime compensation are among those who could see the biggest boost from the new tax law.
Some tax filers may be able to claim bigger auto loan interest deductions and state and local income tax deductions.
Lower-income tipped workers and those who rely on the Supplemental Nutrition Assistance Program (SNAP) could see a reduction in benefits.
If you're a middle-income family in a high-tax state, drive an American-made car, work overtime, and earn tips, under the new tax law you could qualify for deductions that could put more money back in your pocket. Bonus points if you're over 65.
For others, especially lower-income tipped workers and those who rely on federal benefits, the picture is less rosy. Some could see smaller refunds or even lose access to key programs.
The One Big Beautiful Bill (OBBB), which passed in July 2025, will introduce some of the most significant tax changes in years, and make permanent some provisions that were introduced under the 2017 Tax Cuts and Jobs Act (TCJA).
Of the estimated 4 million who earn tipped income, it is higher-income earners (think fine-dining servers, bartenders, and concierges) who stand to benefit the most under the new law. Others who stand to benefit — including seniors over 65 and those who work overtime — may also see increases in tax savings as a result of the new law.
Read on to see an overview of how these changes might impact filers who are eligible.
Free Online Tax Filing: File 100% for free, max out your tax refund guaranteed1, and get your federal tax refund up to 5 days early2 when you direct deposit it with Chime.
What is the no tax on tips provision?
The new "no tax on tips" rule lets eligible workers deduct more of their tips this year. The deduction can be claimed when you file your 2025 taxes in 2026, though it may be possible to have the deductions withheld from your paycheck if you submit a new W-4 to your employer.
If you earn tips, you may qualify. You may be eligible if your job "regularly receives tips," from food and beverage to hospitality, beauty, and transportation and delivery. The full deduction applies to those earning up to $100,000, and phases out completely at $150,000 in income.
Your filing status cannot be "married filing separately" if you want to claim this deduction. Tips are still subject to state taxes where applicable and payroll taxes (Social Security and Medicare), which will continue to show up as withholdings by your employer. This means that if you receive nontaxed tips, there will be a Treasury Tipped Occupation Code (TTOC) listed on your wage form. If you do not have that code, you may not be able to deduct tips from taxable income.
How does no tax on tips interact with other deductions and provisions?
If you plan to take the standard deduction
You can take the no-tax-on-tips deduction whether you itemize or take the standard deduction, which the OBBB made permanently higher.
If you earn overtime income
If eligible overtime is earned, it can also be claimed as a new deduction on the extra pay above your normal rate — up to $12,500 for those making under $150,000.
This provision is separate from the tipped income deduction, so you can stack both.
It only covers the premium portion of overtime compensation (the amount you earn above your regular hourly rate). For example, if you earn $25 per hour and are compensated at time-and-a-half for overtime, this deduction would only apply to the extra $12.50 per overtime hour. If you're eligible for tax-free overtime, you'll still see a deduction on your paycheck for FICA (Social Security and Medicare) for that amount of overtime.
If you're a business owner
A new tax law made permanent is the much anticipated 20% Qualified Business Income (QBI) deduction for self-employed workers and qualifying small-business owners.
The deduction is applicable for "pass-through" structures like sole proprietorships, partnerships, and S-corporations. If you are filing as a self-employed individual, you can take the tips deduction if you work in a qualified industry, but the amount of your deduction cannot exceed your net income from the qualified business.
Other notable changes for the 2025 tax year
Tax rates and brackets. The cuts to the tax rates in each of the seven brackets that the TCJA originally changed were made permanent, and will be adjusted for inflation beginning in tax year 2025. That means you can expect to see the lower rates holding for your 2025 return, and may see further savings in future years.
Increased deduction for individuals over 65. The law introduced a temporary provision that allows seniors 65 years or older to deduct an additional $6,000, as long as their income is below $75,000 ($150,000 for joint filers).
The end of personal and dependent exemptions, plus some itemized deductions. These exemptions were set to return in 2026, but are now permanently eliminated under the new tax law. The government aims to continue offsetting these eliminations with increases to SALT deduction limits and the Child Tax Credit (CTC).
Auto loan interest deduction. Buy an American-made car? You may now deduct up to $10,000 in interest on new auto loans that originated after Dec. 31, 2024, unless you make more than $100,000 annually. Check the IRS guidelines to see if your car meets all the qualifications.
Changes to state and local income tax (SALT) deductions. In addition to federal changes, the new tax law increased the limits on state and local income tax (SALT) deductions from $10,000 to $40,000 for individuals earning $500,000 or less. This provision is effective for the 2025 tax year, and will be adjusted for inflation through tax year 2029.
Who may see reduced tax credits or benefits
Data from The Budget Lab at Yale University shows that more than one third of tipped workers don't make enough to owe federal income tax anyway — which means the deduction primarily benefits higher earners. Most tipped workers are in food service, and within that group, fine-dining servers earn about $56,000 a year before tips, according to Oysterlink, a restaurant job platform.
Some analysts fear that the new tax on tip deductions could unintentionally disqualify low-income tipped workers from other tax credits — such as the earned income tax credit (EITC) and the CTC — by effectively lowering their reported earned income.
Elimination of certain energy-efficient credits
Eco-conscious homeowners lose out too, as two popular energy incentives are expiring. The $7,500 New Clean Vehicle Credit ended on Sept. 30, 2025, and the Energy Efficient Home Improvement Credit, worth up to $3,200, sunsets at the end of 2025. Qualifying home upgrades made before Dec. 31 are still eligible, up to $1,200 for most improvements and up to $2,000 for heat pumps and biomass stoves/boilers.
Adds stricter work requirements (effective July 2025).
Eliminates exemptions for homeless individuals, veterans, and those 24 years old and younger who aged out of the foster care system.
Starting in fiscal year 2027 (Oct. 1, 2026), states will take on 75% of SNAP's administrative costs — a shift experts say could lead to funding cuts and more restrictive benefits. The Congressional Budget Office (CBO) warns that close to 2.4 million people could lose access to the program as a result of these changes.
The new tax law may impact your paycheck
If your income has grown or you're working extra hours, you may notice a slight boost in take-home pay. Those in lower brackets or dependent on federal assistance programs, however, could see smaller refunds or reduced benefits.
Chime® is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.
Chime is not FDIC-insured. The Bancorp Bank, N.A. and Stride Bank, N.A. are the FDIC-insured members. Deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply. FDIC deposit insurance limit is $250,000 per depositor, per insured bank, per ownership category.
Chime Checkbook: While Chime doesn’t issue personal checkbooks to write checks, Chime Checkbook gives you the freedom to send checks to anyone, anytime, from anywhere. See your issuing bank’s Deposit Account Agreement for full Chime Checkbook details.
By clicking on some of the links above, you will leave the Chime website and be directed to a third-party website. The privacy practices of those third parties may differ from those of Chime. We recommend you review the privacy statements of those third party websites, as Chime is not responsible for those third parties' privacy or security practices.
Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of The Bancorp Bank, N.A. and Stride Bank, N.A. (“Banks”). Banks are not responsible for the accuracy of any content provided by author(s) or contributor(s).
APPLE and the Apple Logo are registered trademarks of Apple Inc. GOOGLE PLAY and the Google Play Logo are registered trademarks of Google LLC. Third-party trademarks referenced for informational purposes only; no endorsements implied.
This guide is for informational purposes only. Chime does not provide financial, legal, or tax advice. You should check with your legal, financial, or tax advisor for advice specific to your situation.
Third-party trademarks referenced for informational purposes only; no endorsements implied.
Chime® does not provide tax advice. Please consult your accountant for tailored tax guidance.
Tax e-file services provided by April Tax Solutions Inc. (“april”).
These tax filing offers are not endorsed or offered by our partners, The Bancorp Bank, N.A. or Stride Bank, N.A.
Licenses Chime Capital, LLC, Nationwide Multistate Licensing System ("NMLS") ID 2316451 Chime Payments, Inc., Nationwide Multistate Licensing System (“NMLS”) ID 2538752
Address: 101 California Street, Floor 5, San Francisco, CA 94111, United States.
No customer support available at HQ. Customer support details available on the website.
