Understanding No Tax on Tips and Its Impact on Service Workers

Starting in 2025, a major tax change is reshaping the financial landscape for millions of tipped workers across the U.S. The “No Tax on Tips” provision, part of the federal tax reform package known as the One Big Beautiful Bill, allows eligible employees to deduct up to $25,000 in tips from their taxable income each year. This deduction applies through 2028 and is designed to put more money back into the pockets of those who rely on gratuities as a core part of their earnings.

Who benefits? Workers in occupations that customarily receive tips—such as servers, bartenders, delivery drivers, and beauty service professionals—stand to gain the most. For example, a restaurant server earning $20,000 in tips could save roughly $4,400 in federal income taxes. That’s real relief for everyday expenses, savings, or debt repayment.

Key details:

• The deduction phases out for individuals earning over $150,000 (or $300,000 for joint filers).

• Tips must be voluntary and properly reported to qualify.

• Payroll taxes for Social Security and Medicare still apply, and state taxes may vary.

While this policy offers meaningful tax relief, experts caution that it may not benefit the lowest earners who already pay little or no federal income tax. Still, for many in hospitality and service industries, this change is a welcome boost to financial stability.

Bottom line: “No Tax on Tips” is more than a campaign promise—it’s a tangible step toward easing the burden on hardworking Americans. If you earn tips, make sure you understand the rules and keep accurate records to maximize your benefit.