128 verifiable claims checked across the federal §§ 224 and 225 statutory frameworks (26 USC §§ 224, 225, 3101, 3111, 3301, 6041, 6041A, 6050W, 6051, 6053, 6721), the implementing final regulations at T.D. 10044 (91 Fed. Reg. 19026, Apr. 13, 2026; effective June 12, 2026), the FLSA framework at 29 USC §§ 203, 206, 207, 213 and 29 CFR Parts 516, 531, 553, the OBBB enacting statute (P.L. 119-21, July 4, 2025), the anchor cases Restaurant Law Center v. U.S. Department of Labor, No. 23-50562 (5th Cir. Aug. 23, 2024), Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), and Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), the IRS 2026 W-2 reporting changes (Box 12 codes TP + TT, Box 14b TTOC), Treasury preliminary tipped-occupations list (Aug. 27, 2025), IRS Notice 2025-69 transition relief and Notice 2025-62 penalty relief, IRS Rev. Rul. 2012-18 (tips vs service charges), the structural starting-point taxonomy across 41 income-tax states (5 FTI-starting, 31 AGI-starting + DC, 5 own-base), and the named state actions (CA SB 711, CO HB 25-1296, NY SB S587-A + IT-225, IL administrative add-back, ME P.L. 2025 c. 336 + LD 2010, AZ EO 2025-15, GA HB 463 + HB 1199, OR SB 1507, ID HB 559, MA HB 4975, VA HB 29 / Chapter 7 of 2026 Acts, DC Temporary Conformity Act + H.J. Res. 142, SC H 3368 + H 4216), the Advance Colorado v. Polis TABOR challenge, the worked-example math (Maya the Texas server and Maria the multi-state hourly worker), and the 16 dated entries in Recent Changes spanning late 2024 through May 11, 2026.
128 claims checked: 128 ✓ Verified, zero ⚠ Partial, zero ✗ Issue, zero 🕐 Outdated, zero ⓘ Unverifiable.
The report checks the tip deduction and overtime deduction separately, then checks the shared mechanics that affect both: caps, phase-outs, Schedule 1-A placement, FICA still applying, W-2 reporting, and state tax treatment.
The strongest sources are the Internal Revenue Code, IRS guidance, the Federal Register, DOL/FLSA materials, and official state legislature or revenue-agency pages. Practitioner analysis from tax, payroll, and employment-law publishers is used only to support context or state-rollout tracking; the legal claims are anchored to primary sources where available.
6 claims
IRC §§ 224 and 225 were enacted by OBBB §§ 70201 and 70202 (P.L. 119-21, signed July 4, 2025)
Both Cornell LII codifications confirm § 224 and § 225 under Subchapter B, Part VII; OBBB enactment July 4, 2025 confirmed via congress.gov.
§ 224(b)(1) caps the tips deduction at $25,000 per return; § 225(b)(1) caps the overtime deduction at $12,500 single / $25,000 joint
Both deductions phase out at $100 per $1,000 above $150K (single) / $300K (joint) MAGI; § 224 full phase-out at $400K/$550K; § 225 full phase-out at $275K/$550K
Both deductions sunset for tax years beginning after December 31, 2028; four available tax years (2025–2028)
FLSA § 207(j) 8-and-80 election (29 USC § 207(j)) qualifies under § 225; § 207(k) work periods for fire (53h/7days) and police (43h/7days) qualify
§ 6721 information-return penalty in 2026 is $310 per W-2 / $630 if intentional / annual cap $3,783,000 per employer; voluntary 30-day correction reduces to $60
2 claims
Both deductions live on Schedule 1-A (Additional Deductions), flowing to Form 1040 line 13b — they reduce federal taxable income but not federal AGI
Confirmed via FS-2026-04 and the § 225 Q&A. Because the deductions reduce federal taxable income but not federal AGI, AGI-starting states do not pick them up automatically.
2026 W-2 introduces Box 12 code TP (qualified tips), Box 14b TTOC, and Box 12 code TT (qualified overtime premium); statutory authority IRC § 6051(a)(18) and (19)
2 claims
T.D. 10044 enumerates approximately 70 qualifying TTOCs (Treasury Tipped Occupation Codes) and defines cash tips; 91 Fed. Reg. 19026 (Apr. 13, 2026; effective June 12, 2026)
T.D. 10044 includes cash, check, credit/debit cards, gift cards, mobile-payment apps denominated in cash, and casino chips in the cash-tips definition; excludes service charges, automatic gratuities, and most digital assets
10 claims
§ 224(c)(1) restricts qualifying occupations to those that "customarily and regularly received tips on or before December 31, 2024"
FLSA § 3(m) at 29 USC § 203(m) permits direct cash wage of $2.13/hour with $5.12/hour tip credit against $7.25/hour federal minimum wage; seven states prohibit the tip credit (CA, NV, OR, WA, AK, MN, MT)
§ 225(c)(1) restricts qualifying overtime to "overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act" "in excess of the regular rate"
The "required under section 7" clause excludes California daily 8-hour OT, double-time, 7th-day premiums, OR manufacturing 10-hour daily OT, CO COMPS 12-hour daily OT, HI public-works 8-hour daily OT, ND oilfield 8-hour daily OT, CBA premiums, and exempt "policy overtime."
MCA-exempt drivers under § 213(b)(1) and agricultural workers under § 213(b)(12) have no qualifying overtime under § 225
Colorado HB 25-1296 (signed May 16, 2025) adds back federal § 225 deduction to Colorado taxable income; does NOT add back § 224 — federal tips deduction passes through to Colorado
Section 6 of HB 25-1296 references only "overtime compensation"; absence of § 224 add-back confirmed via the codified CRS § 39-22-104 amendment.
California SB 711 (Chapter 231 of 2025 Statutes, signed Oct. 1, 2025) sets California's IRC conformity date to January 1, 2025 — before OBBB enactment; California does not conform to §§ 224 or 225
Cal. Rev. & Tax. Code § 17024.5 at https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17024.5
Georgia HB 463 (signed May 11, 2026) creates state-level overtime and tip exclusions capped at $1,750 each; HB 1199 advances Georgia's IRC conformity date with explicit §§ 224 / 225 decoupling
Oregon SB 1507 (signed April 9, 2026) selectively disconnects from corporate OBBB provisions and § 226 but affirmatively retains §§ 224 and 225 passthrough
Idaho HB 559 (signed March 3, 2026) conforms Idaho to OBBB including §§ 224 and 225
Virginia HB 29 (Chapter 7 of 2026 Acts, signed Feb. 20, 2026) decouples from §§ 168(k), 168(n), 174 / 174A, 163(j); does not address §§ 224 or 225
1 claim
Restaurant Law Center v. U.S. Department of Labor, No. 23-50562 (5th Cir. Aug. 23, 2024), vacated the DOL's 80/20/30 Tip Credit Rule on a nationwide basis; DOL did not seek Supreme Court review
2 claims
Only the 0.5× premium portion qualifies under § 225 — not the full 1.5× overtime check
California Labor Code § 510 daily 8-hour OT, double-time, and 7th-day premiums don't qualify federally under § 225(c)(1)
Cal. Lab. Code § 510 at https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=510.
1 claim
Advance Colorado v. Polis (Denver District Court, filed July 24, 2025) alleges HB 25-1296 violates Colorado TABOR (Article X, § 20); pending as of May 2026
1 claim
New York NY DTF added IT-225 codes for "Add-back of exempt overtime pay" and "Add-back of exempt tip income" for tax year 2026
2 claims
New York SB S587-A (introduced Jan. 8, 2026 by Gov Hochul) would create state-level tip exemption up to $25,000; tips only — no overtime parallel
Massachusetts HB 4975 (Healey, Jan. 15, 2026) addresses IRC §§ 174A, 163(j), 168(n), 179(b), 1400Z; does not address §§ 224 or 225
1 claim
Illinois requires administrative add-back of both §§ 224 and 225 federal deductions on IL-1040
1 claim
Maine Governor Mills issued a Determination on October 1, 2025 under P.L. 2025 c. 336 declining conformity to §§ 224 and 225; LD 2010 codifies non-conformity into permanent statute
Maine Tax Alert at https://www.maine.gov/revenue/sites/maine.gov.revenue/files/inline-files/ta_october2025_vol35_iss14_0.pdf
1 claim
DC Council passed Temporary Conformity Act on November 4, 2025; H.J. Res. 142 (Congressional disapproval) signed February 18, 2026; DC AG Schwalb opinion February 24, 2026 holds Act remains in effect
1 claim
Arizona Executive Order 2025-15 (November 25, 2025) directs ADOR to add §§ 224, 225, 226, the senior deduction, and the higher standard deduction to Form 140 for tax year 2025
No Arizona statute enacts these conformity changes; the EO is the legal basis.
1 claim
North Dakota and South Carolina are rolling-conformity FTI-starting states without decoupling legislation; ITEP projects ~$29M (ND) and ~$521M (SC) annual passthrough
SCDOR posture is contested; H 3368 + H 4216 are pending.
2 claims
Maya (Texas server) — $20,000 tips + $4,260 cash wage = $24,260 W-2 Box 1; § 224 deduction $20,000; pre-§ 224 federal tax $816 (10% bracket); post-§ 224 federal tax $0; federal savings $816
Arithmetic reconciles claim-by-claim; uses 2026 single standard deduction $16,100 and 10% bracket ceiling $12,400. Colorado overlay: $20,000 × 4.4% = $880; total CO-side benefit $1,696.
Maria ($25/hour, 520 FLSA-overtime hours/year) — $12.50 premium × 520 = $6,500; § 225 federal deduction $6,500 (under $12,500 cap); federal tax savings $1,430 at 22% bracket
California overlay: CA tax on $6,500 at 9.3% marginal = ~$605 (net $825). Oregon overlay: OR tax savings on $6,500 at ~9.9% = ~$644 (net $2,074). Virginia overlay: VA imports federal AGI (not line 15) — § 225 doesn't enter VA tax base regardless of HB 29.
1 claim
16 dated entries in the Recent Changes timeline spanning late 2024 through May 11, 2026, each tied to a primary statutory / regulatory / case source
The timeline was checked against the federal statute, IRS notices, final regulations, and named state actions. Entries are dated where the source provides a signing, publication, or effective date.
57 unique sources cited across the report — click to audit any claim directly against its evidence.
Cal. Rev. & Tax. Code § 17024.5 at https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC§ionNum=17024.5
Cal. Lab. Code § 510 at https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=510.
Maine Tax Alert at https://www.maine.gov/revenue/sites/maine.gov.revenue/files/inline-files/ta_october2025_vol35_iss14_0.pdf
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