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No Tax on Tips Bill Offers Relief—But Who Truly Wins?

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No tax on tips rule 2025 – service workers can deduct up to $25,000 from taxable income but face possible wage and policy challenges


The “no tax on tips” rule helps workers who earn tips. They can deduct up to $25K from their income. However, experts worry about possible unintended effects.

I want to break this down simply but with my human-take:

From 2025 to 2028, a new law lets some service workers deduct up to $25,000 in tips from their federal taxable income. This change aims to increase their take-home pay. But as with many slick tax moves, the devil’s in the details—and who truly benefits is still unclear.

The Details:

  • Tipped workers, such as servers, bartenders, delivery drivers, and beauty service workers, can deduct up to $25,000 in tips from their federal taxable income.

  • The deduction reduces for those with higher incomes. It usually starts phasing out at $150,000 for individuals and $300,000 for joint filers.

  • Only about 2.6% of tax filers get significant relief, saving an average of $1,370.

“The elephant in the room … so many tips go unreported to begin with,” says a tax professional. This matters because the tax break only works if tips are properly reported. Service workers who earn little or no tips, or who make too little to pay federal tax, might not see much benefit. Also, businesses might use more tipped job classifications to take advantage of the deduction. Critics say this could lower base wages even more.

There’s reason to worry that no tax on tips acts more as a business subsidy than a worker benefit. Employers might rely more on tips. This could lower base pay but not change total earnings. Many low-income tipped workers say they earn so little that they owe little or no taxes. So, the deduction won’t boost their take-home pay at all. Compliance complexity and unclear IRS guidance about qualifying jobs add to the uncertainty.

The IRS and Treasury will clarify which jobs qualify by early October. States are considering new laws for state income taxes. Models are being developed in Illinois, New York, Massachusetts, New Jersey, and more.

"The no tax on tips deduction looks good on the surface. It aims to help tipped workers, but it has limits. This plan could keep base wages low, which might hurt those who need help the most."

NOTE: Average Salary Two-Takes shares chosen stories from around the web. We add our quick thoughts in a brief paragraph. Click the source to read the full original article.

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