No More Taxes on Tips

President Donald Trump has delivered on his campaign promise to eliminate taxes on tips.  On July 4, 2025, he signed into law H.R. 1, the Working Families Tax Cuts (WFTC) package, which includes a provision allowing qualified individuals to deduct tips from their income for tax purposes.  This deduction is capped at $25,000 and phases out starting at modified adjusted gross income of $150,000 for individuals and $300,000 for joint filers.

The tips deduction is available for taxpayers who both itemize and take the standard deduction, and it will be in place between 2025 and 2028.  Since it is retroactive, taxpayers will get the benefits of the tax cut when they file their 2025 tax returns.  The Department of the Treasury published a list of 68 qualified occupations, including jobs in beverage and food service; entertainment and events; hospitality and guest services; home and personal services; and transportation.  This provision of the WFTC keeps more money in taxpayers’ pockets and rewards hard workers.

The deduction will benefit nearly six million taxpayers, saving each one an average of $1,300 annually.  It will be especially important for those who rely on tips as their primary source of income.  The No Tax on Tips provision is another promise kept by President Trump, ensuring that it is the employee, not the federal government, who receives extra income commensurate with the quality of services they provide.