On July 4, 2025, President Trump signed the Tax Relief for American Families and Workers Act of 2024 into law. The new legislation has made headlines for delivering on two widely publicized promises: no federal income tax on tips, and no federal income tax on overtime. While the idea sounds simple, the actual application—especially for employers in Nevada—is anything but.
This new law takes effect for the 2025 tax year, meaning the first real impact will be felt during the 2026 tax season. And for now, many payroll systems and HR teams are left navigating a legal change that shifts tax reporting without changing paycheck calculations - including still awaiting guidance from the IRS on how to move forward.
What’s Actually Changing? Despite what the headlines might suggest, employers are still required to process and withhold federal taxes on both overtime pay and tips, just as before. Paychecks won’t look any different, and the tax break won’t be visible until employees file their 2025 tax returns. If they qualify, they’ll receive a larger refund—but only if the earnings meet specific criteria outlined by the IRS and the Department of the Treasury.
FLSA-Only: The Limitation Behind “No Tax on Overtime”
The new law only applies to overtime that is required under the Fair Labor Standards Act (FLSA). That means overtime earned from working more than 40 hours in a workweek. It does not apply to overtime that is required solely under state law or collective bargaining agreements.
That distinction is critical in Nevada, where daily overtime is required by state law—not by the FLSA. Employees who work more than 8 hours in a 24-hour period (and are not on an approved alternative schedule) must be paid time-and-a-half, even if they don’t hit 40 hours in the week. However, that daily overtime is not considered FLSA overtime and is therefore not eligible for the federal tax deduction.
Employers will now need to track and report Nevada daily overtime separately from FLSA weekly overtime. These amounts must be clearly reported on employees’ Form W-2 beginning with 2025 wages.
The “No Tax on Tips” Deduction—Still Waiting on Guidance
The law also creates a new tax deduction for qualified tips, up to $25,000 per year. To qualify, tips must be:
- Voluntarily paid by the customer
- Not negotiated or mandatory
- Reported as required by the IRS
Importantly, only employees in occupations that regularly received tips before December 31, 2024 will be eligible. The Treasury has 90 days from the law’s passage to publish a list of approved occupations. Until then, employers should avoid restructuring pay or expanding tip pools in hopes of qualifying for the deduction. The IRS has also stated that more guidance is coming to prevent misclassification or abuse.
Just like the overtime portion of the law, employers must still process and report all tips as taxable income during payroll. The deduction will only show up for employees at tax time, depending on how they file.
HR Compliance Alerts
Daily vs. Weekly Overtime: Nevada’s daily overtime is not eligible for the federal deduction. Employers must separate and document daily OT earnings independently from weekly OT.
No Payroll Changes (Yet): This law does not affect how employers withhold or report federal income taxes on wages. Continue payroll processing as normal.
W-2 Reporting Requirement: Beginning with 2025 wages, employers will be required to report the total amount of qualified FLSA overtime on a separate line item in Box 14 or as instructed by the IRS (we're still awaiting to hear)
Tip Occupation Guidance Pending: Employers should wait for the Treasury’s official list of qualifying tip-based occupations before assuming which roles may be eligible.
Watch for Misclassification Risks: Attempting to restructure wages (e.g., artificially low hourly rates paired with inflated “overtime” earnings) could lead to IRS penalties and FLSA violations. Changes to compensation models should be reviewed by legal or HR compliance professionals.
Final Thoughts
While the “no tax on overtime and tips” law sounds like a win for workers, it introduces new compliance burdens for employers—especially in states like Nevada that have their own wage and hour rules. Getting ahead of these changes now means fewer headaches during tax season and fewer risks during an audit.
If you're unsure how this new law applies to your workforce, NevadaHR can help. We specialize in helping Nevada businesses align federal and state requirements, update payroll tracking, and train HR teams on compliance changes before they become problems.