Tax Pros 360 Cart

← All Insights

Due Diligence

Documenting the tips and overtime deductions: a preparer’s playbook

These deductions aren’t on Form 8867, but your duty to ask questions still applies.

Tax Pros 360 Editorial Team · Editorial edition:

· Reviewed October 9, 2026

Documenting the tips and overtime deductions: a preparer's playbook

The qualified tips and overtime deductions are new, popular and easy to over-claim. They aren’t among the four Form 8867 benefits. Your general standard of care still applies: Circular 230 and the preparer penalty rules expect reasonable inquiry when something doesn’t add up.

Tips: what to confirm

QuestionWhy it matters
Is the job on Treasury’s tipped-occupation list?Only customary tipped occupations qualify.
Does Box 14b show a valid occupation code (not 000)?Code 000 alone means tips are not qualified.
Is the client self-employed in a specified service business?Tips from an SSTB generally don’t qualify.
MAGI over $150K ($300K joint)?The deduction phases out.
Married filing separately?Generally ineligible; must file jointly.

Overtime: the premium-only rule

Only the premium portion of FLSA overtime counts. Take a worker paid $30/hour who works 10 overtime hours at time-and-a-half ($45/hour):

  • Total overtime pay: 10 × $45 = $450
  • Regular-rate portion: 10 × $30 = $300
  • Qualified overtime (premium only): $150

If a client’s pay stub shows $8,000 of “overtime,” the qualified amount is closer to $2,667 at time-and-a-half. Overtime that isn’t required by the FLSA (for example, a state-only rule or a union contract) may not qualify.

What goes in the file

  1. A copy of the W-2 showing code TP or TT and Box 14b.
  2. For TY2025 returns without codes: the employer statement or pay stubs used.
  3. Your notes on occupation, filing status and the MAGI check.
Rule of thumb:

If a client’s claimed overtime equals their whole overtime line on a pay stub, stop and recalculate.

This article is general information for tax professionals, current as of October 2026. It is not legal advice. Confirm figures against current IRS guidance before you rely on them.