No Tax on Tips
Starting in 2025, the One Big, Beautiful Bill (OBBB) introduces a federal income tax deduction for tips, allowing eligible workers to deduct up to $25,000 in reported tip income annually. To qualify, you must work in an occupation the IRS designates as “customarily receiving tips” and report those tips on a W-2, 1099, or Form 4137. The deduction is available whether or not you itemize and apply to both employees and self-employed individuals. The deduction phases out for individuals with modified adjusted gross income over $150,000, or $300,000 for joint filers. The IRS will publish the official list of qualifying occupations by October 2, 2025.
Tip Credit for Employers
For decades, the FICA Tip Tax Credit was available only to employers in the food and beverage industry, allowing them to claim a dollar-for-dollar credit on the employer portion of FICA taxes paid on employee tips. But thanks to the One Big Beautiful Bill (OBBB), that’s no longer the case. As of July 4, 2025, the tip credit has been permanently expanded to include salons, spas, and barbershops.
