For tax years 2025-2028, the One Big Beautiful Bill Act (OBBBA) allows employees to take an above-the-line deduction on qualified tips and overtime pay. There is a lot of confusion around these provisions, creating room for misinformation and attempted manipulation of the rules. This article aims to clarify how the new law applies within dealerships and what dealers should understand about employee questions and reporting responsibilities.

Tips

The Treasury Department has published a list of occupations that “customarily and regularly” receive tips. The only listed occupations which may traditionally be employed by auto dealerships are auto detailer and shuttle driver. In my experience, these employees typically do not receive tips from customers; even if they did, they are likely not reporting those tips as compensation. 

Overtime

The overtime deduction is more likely to affect dealership employees, and it may be a significant source of confusion when taxpayers file returns for the first time under OBBBA in early 2026.

Many dealership employees work more than 40 hours per week, and some pay plans provide additional compensation for hours worked beyond that threshold. However, the law is explicit: If an employee is classified as exempt under the Fair Labor Standards Act (FLSA), then none of their additional compensation qualifies as deductible overtime.

Exempt Employees (Not Eligible for Qualified Overtime)

• • Sales: Employees primarily engaged in selling automobiles and trucks.
  • Parts: Employees primarily engaged in requisitioning, stocking and dispensing parts.
  • Technicians: Employees primarily engaged in mechanical work on the vehicles. (This does not include quick lube technicians primarily performing oil changes and tire rotations.)
  • Service Advisors: Employees who meet with customers to discuss and arrange vehicle repairs.
  • General and Department Managers: Employees whose primary duty is managing the enterprise or a recognized department; who direct at least two full-time employees; and who have hiring/firing authority or significant input into those decisions.
  • Commissioned Employees: Employees whose earnings are more than 50% commissions and whose pay rate exceeds 1.5× the applicable minimum wage in weeks where overtime is worked.

Non-Exempt Employees (Eligible for Qualified Overtime)

• • Quick lube technicians (unless considered commissioned employees — see previous)
  • Detailers
  • Drivers
  • Clerical office staff
  • Other employees not primarily engaged in sales, parts, and service work

This article is not intended to serve as a definitive FLSA classification guide. Instead, dealers should review current pay plans and identify employees who may be eligible for the new deduction to ensure accurate reporting and communication.

Reporting Requirements  

The IRS has granted employers temporary relief from mandatory W-2 reporting of qualified tips and overtime for the 2025 tax year. Dealers will not be required to report this information until 2026 W-2s (filed January 2027).

Dealers may choose to voluntarily report qualified overtime on 2025 W-2s — either in Box 14 or through a separate statement. Employees who need the information for their 2025 tax filings may also rely on their final year-end pay stub.

For 2026, employees should review and update the revised Form W-4. Those employees who expect qualified tips or overtime may adjust their withholding accordingly. Dealers must ensure their payroll systems can accommodate the new deduction line and should consult IRS Publication 15-T for updated federal withholding tables.

Bottom Line

While these new provisions may not significantly impact dealership operations, dealers should be prepared to answer employee questions, understand which roles may qualify, and ensure payroll and reporting processes are aligned with OBBBA requirements. Taking proactive steps now will help minimize confusion and ensure compliance when the new rules take effect.