The “no tax on tips” provision in the One Big Beautiful Bill Act that eliminates federal taxes on tips is now in effect. The provision may be helpful for workers who receive tips as part of their income. It could be significant for people who work in the service and tourism industries.
Less than 3 percent of U.S. workers receive tips as part of their income, according to a Yale study. That percentage is higher in states that rely on service and tourism. Nevada tops the list, with the most tipped workers, according to the non-partisan Tax Policy Center.
The provision caps deductions at $25,000 – meaning tipped workers can only deduct up to that amount. Cox says this applies to one qualified claim per household. In other words, if a married couple files jointly and both work in tipped jobs, only one deduction can be claimed.
Todd Cox, a certified public accountant in Las Vegas, says the savings can be significant.
“Make sure your employer is filing your W-2 properly and make sure that you're utilizing all the deductions that you're eligible for because it can be a really big benefit to you and translate into thousands of dollars of tax savings."
The Trump-backed deduction is set to expire in 2028. However, Cox says it’s not unusual for tax provisions to start as temporary measures.
"If it's a good thing and there's an appetite for it and we can show that it's performing the way we want it to perform and it's helping the people we want it to help, then it will be easy for them to renew it."
The IRS lists specific jobs where workers receive tips and may qualify for the deduction included in the “no tax on tips” provision.
This story was produced by the Mountain West News Bureau, a collaboration between YOUR STATION, Wyoming Public Media, Nevada Public Radio, Boise State Public Radio in Idaho, KUNR in Nevada, KUNC in Northern Colorado, KANW in New Mexico, Colorado Public Radio, KJZZ in Arizona and NPR, with additional support from affiliate newsrooms across the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting and Eric and Wendy Schmidt.
