Your Money Minute The Truth About No Tax On Tips 8/20/25
Aug 20, 2025
Discover the groundbreaking new tax exemption law for tipped workers that could save them a whopping $25,000! Learn about the qualifying conditions for tax-free tips and the implications of this temporary law, which is set to expire in 2028. This insightful discussion sheds light on how it impacts both workers and employers, making it a must-listen for anyone in the service industry.
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New Temporary Tip Deduction
- The law creates a tax deduction up to $25,000 for qualified tipped workers instead of fully exempting tips from tax.
- The deduction phases out above $150,000 and the provision expires in 2028.
Which Tips Might Qualify
- Qualified tips include cash, credit-card gratuities, and earnings from tip-sharing arrangements.
- The law requires tips to be voluntarily paid by customers, so mandatory service charges may not qualify.
Check Tax And Reporting Responsibilities
- Expect state income tax and payroll tax obligations to remain for most tipped workers despite the federal deduction.
- Watch for IRS guidance on employer reporting to ensure tip income appears on W-2s or 1099s so workers can claim the deduction.