"No Tax on Tips?" Here’s What It Really Means

If you have seen headlines or heard people say there is now “no tax on tips,” the reality is a bit different.

Starting in 2025, the new tax law allows a deduction of up to $25,000 in qualified tips per year for individuals—but this is not the same as tips being tax-free.

Here’s how it works:

• You still report your tips as income.

• Up to the allowable amount of tips can now be deducted from your taxable income.

• The deduction is available for both itemizing and non-itemizing taxpayers.

It’s a helpful break, but it’s not a free pass to skip reporting tips.

If you earn tips, start tracking them accurately now. When tax season arrives, this deduction could reduce your taxable income, but only if your tips are properly tracked. Stay tuned to learn what documentation is needed to be eligible for the tips deduction.

Each week, I share a clear, bite-sized tax insight straight from my continuing education so you can stay informed without sifting through tax changes.

Next week, we cover who qualifies for the new tip deduction.

Thanks for reading,

Brandy Sparkman, EA

I’ll keep learning so you can stay focused on what you do best.

See you next week for another Tax Minute.