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.