As we prepare for the 2025 Tax Filing season, here are some tips on what the new No Tax on Tips and No Tax on Overtime provisions may mean for you and your employees.
What’s been established thus far:
- Eligible employees may deduct up to $25,000 of their reported tips from federal taxation.
- Eligible employees may deduct up to $12,500 of their qualified overtime income. Qualified overtime includes only those hours required under the Fair Labor Standards Act (FLSA).
- The US Treasury advised a list of Occupations That Customarily and Regularly Received Tips and qualify for the No Tax on Tips deduction.
- The IRS published guidance for determining your qualified tips and overtime compensation.
Employees will be expected to independently determine if they qualify for one or both deductions, and then self-report the amount of qualifying wages when preparing their personal tax return. Contact your CPA or tax advisor for the latest information on whether you qualify.
How employees can find the total tip earning amount to report:
- Go to the Square Dashboard to view your payroll profile.
- On the Paystubs tab, select the latest pay stub with a 2025 pay date.
- Download a PDF of your pay stub. PDF pay stubs provide a year to date total for each earning type, under the column “YTD”.
- You should report the sum of YTD amounts shown for “Paycheck Tips” and “Tips Already Paid”. Note: if your employer did not report any tips already paid in 2025, this line will not appear on your pay stub.
How employees can find the total overtime earning amount to report:
- Go to the Square Dashboard to view your payroll profile.
- On the Paystubs tab, select the latest pay stub with a 2025 pay date.
- Download a PDF of your pay stub. PDF pay stubs provide a year to date total for each earning type, under the column “YTD”.
- You should use the YTD value shown as “Overtime Hours” in your reporting. Note: For eligible employees, the No Tax on Overtime provision only applies to the overtime premium wages, not the entire overtime amount. For example, if your overtime is paid at “time-and-a-half,” two-thirds of the pay is regular wages and one-third is the overtime premium. Divide the YTD value by three (3) to find the portion that may qualify for the deduction.
If you switched to Square Payroll in 2025 and used another provider earlier in the year, any tips or overtime paid through your previous provider won’t appear in your employees’ year-to-date totals on their Square pay stubs. We recommend exporting the annual totals for your employees by downloading the Employee Totals report. For detailed steps, see our guide to downloading payroll reports. When calculating the qualifying total amount, be sure to follow the same summation or division step outlined in step four above.
Square will continue to monitor for guidance affecting you or your team, and share any updates as soon as they are available.
This message is intended for informational purposes, and not as tax or legal advice. For guidance or advice specific to you or your business, you should consult with a tax or legal professional.
