The upcoming tax season is set to bring significant changes for certain workers in Wisconsin, offering them potential tax relief as they prepare to file their 2025 taxes. The window for filing opens in just a few days, and new federal regulations allow eligible employees to deduct thousands of dollars in tips and overtime pay, providing an opportunity for increased savings.
Recently, the Wisconsin Senate passed a bill aimed at reducing state taxes on tips, aligning state regulations with the newly implemented federal guidelines. Local CPA Chris Hendricks from Hawkins Ash CPAs highlighted that depending on individual circumstances, workers could exclude up to $25,000 in tips or overtime from their taxable income in 2025.
The regulations primarily benefit those in professions within the food and beverage industry, including bartenders and servers, as well as individuals in hospitality or guest services. The IRS has identified approximately 70 job categories that may qualify for these new tax relief measures.
However, as taxpayers prepare to navigate this transition year for tax filings, challenges may arise due to outdated paperwork. According to Hendricks, since the new rules were introduced in July 2025, the W-2s and 1099s for that tax year have not been modified to reflect these changes. This means employers are tasked with providing separate statements to employees regarding qualified overtime, with some opting to include this information in Box 14 of the W-2 forms.
The filing process may also present complexities in understanding overtime deductions. Under the Fair Labor Standards Act, only the “half” of the overtime pay that exceeds a 40-hour work week qualifies for deductions. Additionally, it’s important to note that service charges do not constitute tips; only voluntary tips can be deducted.
Married couples opting to file separately should be aware that they will not qualify for these new deductions. As taxpayers brace for the opening of the 2025 filing period, careful tracking of earnings and awareness of the changes will be crucial for maximizing potential savings.
