The Treasury Department and IRS released information surrounding the President Trump-backed policy of “no tax on tips.”
According to the guidelines, people earning tipped income can deduct as much as $25,000 a year.
“For taxable years beginning after December 31, 2024, and before January 1, 2029, employees and self-employed individuals may deduct qualified tips from their gross income when calculating their Federal income tax liability. Section 224(d (1) defines the term ‘qualified tips’ to mean cash tips received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary,” the document explains.
Occupations that are likely to be involved in the policy include bartenders, wait staff, food servers, chefs, dishwashers, fast food workers, bakers, gambling dealers, dancers, musicians, ushers, concierges, hairstylists, and other positions.
“The occupations identified as having customarily and regularly received tips based on this survey data were largely consistent with those identified by the confidential tax return data,” the Treasury and IRS explained.
The statement added that a report from the Council of Economic Advisors (CEA) estimated that the “no tax on tips provision of OBBBA will increase average take-home pay for tipped workers by $1,300 per year.”
In May, the Senate unanimously passed the “No Tax on Tips Act” on May 20, 2025, delivering a significant legislative victory for President Donald Trump’s economic agenda. The bill, introduced by Sen. Ted Cruz (R-TX), allowed tipped workers to deduct up to $25,000 in reported cash tips from federal income taxes, provided their total compensation does not exceed $160,000 annually.
The “No Tax on Tips” policy was later passed as part of the One Big Beautiful Bill in July.
