Greetings, I received a great question about how the new law on “no tax on tips and overtime” affect the AWW.
Wages for AWW purposes only include wages reported to the IRS for federal income tax purposes.
440.02 (40) “Wages” means the money rate at which the service rendered is recompensed under the contract of hiring in force at the time of the injury and includes only the wages earned and reported for federal income tax purposes on the job where the employee is injured….
So, how does the new tax law of “no tax on tips or overtime” affect the AWW.
Per the IRS website:
No Tax on Tips
Under the One, Big, Beautiful Bill, workers may be eligible for new deductions for tax years 2025 through 2028 if they received qualified tips. For tipped workers, the maximum annual deduction is $25,000, which phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
No Tax on Overtime
For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
- Maximum annual deduction is $12,500 ($25,000 for joint filers).
- Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).
The deduction is available for both itemizing and non-itemizing taxpayers.
So, tips and overtime still have to be reported to the IRS, workers get a tax deduction. So you still include tips and overtime in the AWW.
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Sincerely,
Morgan Indek | Managing Partner