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'No tax on tips' policy leaves workers confused

Provision claimed as income tax deduction

By: Rachel Barber
USA Today

..... Some workers who heard "no tax on tips" throughout election season are wondering why their paychecks look similar to those they received last year. [2025]
..... Miklos Ringbauer, a certified public accountant and founder of Miklos CPA Incorporated, said he still faces questions about how the policy works ahead of the October 15 extended 2025 federal deadline.
..... Eligible tipped workers still waiting to file their taxes haven't reaped the benefits of the "no tax on tips" policy yet. Whether you're still procrastinating submitting your 2025 return or you're stated a tipped job this year, [2026] here's a refresher on how it works.

How 'no tax on tips' works

..... Ringbauer said some Americans got sued to receiving money from the government directly when the received stimulus checks during the COVID-19 pandemic, prompting some confusion about how to get in on "no tax on tips."
..... The policy did not mandate a payroll change. It is a federal income tax deduction eligible workers can claim when they file their taxes.
.... Because not all tipped workers qualify for the deduction, many employers have kept their workers, withholdings the same, Ringbauer said, this is why tipped workers' paychecks still look similar to those they received last year. [2025] "There are so many intricacies to it that make it impossible for your employer to make adjustments" to your paycheck, Ringbauer said,

Average 'no tax on tips'

.... More than 7.5 million ax filers claimed the "no tax on tips" deduction earlier this year, [2026] receiving an average deduction of $7,000, the Treasury Department said in June. [2026] Of them 90% reported annual income under $100,000.
..... Tax deductions lower filer' amount of taxable income. They are different from tax credits, which can reduce the amount of tax they owe. Both can lead to a larger tax refund.
..... Erin Fabry, 41, is a part-time server at two restaurants in Tucson, Arizona, and her income mostly comes from tips. After owing the IRS $1,000 in 2025, she said, she got $5,00 back this year. [2026] she added that was likely a result of changes her withholding, but that the "no tax on tips" deduction also boosted her refund.

Tips are not completely tax free

..... Despite the catchy slogan, tips are still not completely tax free. Social Security and Medicare taxes still apply.
..... Also, depending on where you live, tips still may not be exempt from state and local income taxes.

Savings are not unlimited

..... Under a provision of he tax and spending law President Donald Trump signed last summer, [2025] eligible workers can deduct up to $25,000 in "qualified" tips from their taxable income.
..... Whether you qualify depends on how much you make. The deduction phases out for single taxpayers with a modified adjusted gross income of $150,000, and for joint files making$300,000 or more. It is not available for married couples filing separately. For those who are self-employed, the deduction may not exceed their net income from the trade or business in which the tips were earned, the IRS explains on its website.

Not all workers qualify

..... Only people working in jobs that "customarily and regularly" received tips before December 31, 2024, are eligible for the tax befit, according to the Treasury.
..... The department's list of qualified occupations includes many roles. Common tipped jobs like bartenders, wait staff, maids, babysitters, and drivers make the list, but it also includes travel guides, golf caddies, casino dealers, clowns, DJ, electricians, plumbers, tutors, photographers, and more.
..... Job that fall under "specific service trade or businesses," or SSTBs, were originally excluded form the tax benefit. In general, they remain ineligible, but an April [2026] analysis by RSM US - an audit, tax, and constituting firm - concluded there's likely still further guidance for SSTBs to be issued.

Not all tips qualify

..... Only "qualified tips" are eligible for the deduction. The IRS defines "qualified tips" as voluntary cash or charged tips received from customers or through tip sharing. Mandatory tips and automatically applied gratuity don't count. Tips must be determined by the payer and given voluntarily.
..... In updated regulations, the Treasury clarified that tips received by a manager or supervisor thorough a tip-sharing arrangement or pool also do not count. However, if that manager or supervisor received tips directly for services they provided, those can be considered "qualified tips."

This isn't permanent

..... The "no tax on tips" deduction expires December 31, 2028. unless it is extended by Congress.
..... Fabry, the server, would like to see it continue, She said t helps make up for the benefits she doesn't receive from her employers.
..... Ringbauer said employees shouldn't get used to the deduction. He remains his clients they may not be able to rely on it after the three-year period is over.

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