Stop Waiting for a Huge Refund — Get Your OBBB Tip Deduction in Every Paycheck
The new OBBB tax law introduced one of the biggest benefits service workers have ever seen:
A $25,000 tax deduction for reported tips.
This deduction massively lowers taxable income — but most workers won’t feel the benefit until they file their 2025 return in early 2026.
Unless they adjust their W-4 now.
If you work for tips — servers, bartenders, delivery workers, hotel staff, rideshare drivers who report tips to employers — you can bring home higher paychecks today by correctly updating your W-4 to reflect the new deduction.
This guide walks you through the steps.
What the $25,000 Tip Deduction Actually Does
The OBBB Tip Deduction:
- Lets you deduct up to $25,000 in qualified, reported tips
- Lowers your taxable income immediately
- Reduces the amount of federal tax that should be withheld from your paycheck
- Dramatically increases take-home pay for service workers
If you do not adjust your W-4, your employer continues withholding based on old tax rules, meaning you will be dramatically over-withheld for the entire year.
That results in a huge refund later — but less money every week.
Why Adjusting Your W-4 Is Critical
The IRS does not automatically apply the tip deduction to your payroll.
If you don’t update your W-4:
- Your employer withholds too much
- Your take-home pay is smaller
- You wait until next filing season for the refund boost
If you do update your W-4:
- Your employer withholds less
- You get the benefit of the deduction immediately
- Your paychecks increase now
This is the difference between waiting for a $3,000–$5,000 refund next year or receiving $50–$125 more per week right now.
Step-By-Step: How to Adjust Your W-4 for the OBBB Tip Deduction
Step 1: Estimate How Much You Make in Tips
Add up:
- Credit card tips
- Cash tips
- Pooled tips
- Reported tips on Form 4070 to your employer
If you consistently earn more than $25,000 per year in tips, assume the full deduction applies.
If you earn less, enter the estimated annual amount.
Step 2: Reduce Taxable Income on Your W-4 (Step 4(b))
The W-4 allows employees to claim deductions other than the standard deduction in Step 4(b).
This is where the OBBB Tip Deduction goes.
Example:
If you expect to deduct $25,000 in tips, enter:
25,000 in Step 4(b)
This immediately reduces the income your employer uses to calculate withholding.
Step 3: Adjust Withholding as Needed
Depending on your situation, you may also want to:
- Increase allowances in Step 3 (if you qualify for credits)
- Enter a smaller tax withholding amount in Step 4(c) (optional)
The key is Step 4(b) — the dedicated area for additional deductions.
How Much More Will You Take Home?
Here are approximate weekly increases after adjusting W-4 for a $25,000 tip deduction:
- $35,000 wage earner with $25k in tips: $60–$85 more per week
- $50,000 wage earner with $25k in tips: $75–$120 more per week
- High-tip service worker: $100–$150 more per week
These are conservative estimates and vary based on your total income and filing status.
Who Should Update Their W-4 Right Away?
- Servers
- Bartenders
- Casino dealers
- Delivery drivers
- Hotel and hospitality staff
- Salon and spa workers
- Anyone reporting Form 4070 tips to their employer
If your tips are reported and count toward your W-2 income, this deduction applies to you.
When to Update the W-4
Immediately.
The earlier you adjust your withholding, the sooner your take-home pay increases.
A delay of months means you leave thousands of dollars in over-withheld taxes sitting with the IRS until refund time.
Common Mistakes to Avoid
Mistake 1: Not Reporting Tips
Unreported tips cannot be deducted under OBBB rules.
Mistake 2: Putting the deduction in Step 4(c) instead of 4(b)
Step 4(c) is for extra tax withheld — not deductions.
Mistake 3: Ignoring the deduction because “I always get a refund”
You will still get a refund — but you could get weekly pay increases instead.
The $25,000 Tip Deduction is a refund changer — but only if you update your W-4.
By entering the deduction in Step 4(b), you reduce your taxable income in real time and increase your take-home pay immediately.
This is the smartest financial move tip workers can make under the OBBB tax rules.
Don’t wait until next year’s refund.
Start benefiting right now.
