Bartender Athena Young cleans glasses whereas talking to the Review-Journal concerning the “no tax on tips” coverage at Atomic Kitchen in Las Vegas, Wednesday, July 31, 2024.
Las Vegas Review-journal | Tribune News Service | Getty Images
Maddy Lopez, a bartender in Los Angeles, has spent 25 years working within the restaurant trade, the place suggestions can make up a significant portion of a worker’s income.
When she heard about President Donald Trump’s “big beautiful bill,” which includes a section known as “no tax on tips,” she mentioned her first response was: “It’s a little too good to be true.”
Lopez mentioned that in her expertise, tax breaks typically appear to incorporate “a catch,” and she or he is not positive the profit will likely be as beneficiant as some workers count on.
It’s an affordable query, specialists say: Some key particulars of the availability — together with which occupations and sorts of gratuities might qualify — are nonetheless unclear. There’s additionally some confusion amongst workers about how the tax break works.
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T. Cooper, a hair and make-up stylist in New York City, mentioned that the measure is “being perceived incorrectly” amongst tipped workers she is aware of.
“A lot of people don’t understand that you will still have to pay the tax on tips,” she mentioned.
How ‘no tax on suggestions’ works
Both Republicans and Democrats floated the “no tax on tips” concept in the course of the 2024 presidential marketing campaign.
The “no tax on tips” provision in Trump’s “big beautiful bill” offers a deduction value as much as $25,000. This tax break, which is out there even in the event you do not itemize deductions, reduces taxable earnings.
The deduction phases out, or will get smaller, as soon as modified adjusted gross earnings exceeds $150,000. The regulation can also be non permanent; the tax break is out there from 2025 by way of 2028.
However, “you’re still likely paying state taxes” on tip earnings, and you may owe payroll levies for Medicare and Social Security, mentioned Ben Henry-Moreland, an authorized monetary planner with advisor platform Kitces.com, who analyzed the legislation.
Lots of people do not perceive that you’ll nonetheless should pay the tax on suggestions.
T. Cooper
a hair and make-up stylist in New York City
Deductible suggestions should seem on information returns out of your employer, similar to Form W-2 or 1099. But the company’s reporting guidelines for tip earnings stay unclear, specialists say. For instance, questions stay about how employers have to report suggestions on Forms W-2 or 1099 to qualify for the deduction.
Currently, workers who make $20 or more per 30 days in suggestions should report these earnings to employers, in keeping with the IRS. Tips can embrace money immediately paid by clients, payouts from tip-sharing constructions amongst staff and bank card funds.
The IRS is predicted to make clear which occupations qualify for the tax break in early October, per the company.
What counts as ‘certified suggestions’
According to the availability, “qualified tips” embrace money or gratuity paid by bank card, in addition to earnings from a sharing association.
But it additionally says suggestions have to be paid voluntarily by the shopper. That places computerized service fees — like obligatory gratuity fees eating places impose on bigger events — in query, specialists say.
Adding to the reporting confusion, it is common for these sorts of obligatory gratuities to combine with different tip earnings and easily seem as suggestions on tax varieties, Lopez, the bartender, mentioned of her expertise.
Customers are tipping much less
In some industries, tipping has decreased as consumer sentiment declines. During the second quarter of 2025, the common tip throughout eating places, cafes and bars was at 14.99%, down from 15.17% the prior quarter, in keeping with a new report by Square, a expertise companies firm.
“As consumer confidence in the economy shifts and tips fall, workers are taking home less,” Ming-Tai Huh, head of meals and beverage at Square, wrote within the report.
Some customers are additionally experiencing “tipping fatigue.” About 41% of Americans mentioned that “tipping is out of control” in 2025, up from 25% final 12 months, in keeping with a Bankrate report.
Miodrag Ignjatovic | E+ | Getty Images
Some workers say increased service prices and lowered shopper spending have contributed to those tipping tendencies.
In the hair trade, costs usually rise yearly as the price of supplies, lease and companies go up, mentioned Cooper.
“So it’s not that people have an issue with tipping,” she mentioned. “The service overall has just become way more expensive.”
In eating places and bars, it is common to see smaller checks lately, Lopez mentioned, which makes your tip common decline.
For instance, beforehand, a $200 tab might earn $40 in suggestions. But these days, a typical tab might be $100, she mentioned, and “you’re only making $20 on the same guest.”