WASHINGTON DC.
On Labor Day, the U.S. Treasury Department announced that nearly 70 jobs across eight sectors could qualify for a significant tax break on tipped wages under President Donald Trump’s One Big Beautiful Bill Act (OBBBA), signed into law this summer. This fulfills a campaign promise to eliminate federal income taxes on tips, aiming to ease financial burdens for millions of service workers. The policy, part of the broader OBBBA, has sparked both support and skepticism, with implications for workers, employers, and the federal budget.
The “No Tax on Tips” provision targets workers in jobs that “customarily and regularly received tips” before December 31, 2024. Eligible sectors include food and beverage (servers, bartenders, baristas), hospitality and guest services (concierges, bellhops), events and entertainment (ushers, event staff), personal services (hairdressers, nail technicians), personal appearances and wellness (massage therapists, fitness instructors), home services (cleaners, pet groomers), recreation and instructional professions (golf caddies, tour guides), and delivery and transportation (rideshare drivers, valets). The Treasury’s preliminary list of 68 jobs will be open for public comment before finalization, but healthcare, performing arts, and athletic workers are excluded.
The deduction allows workers to exclude up to $25,000 in tips from federal income taxes, though payroll taxes and state taxes still apply. Reported on IRS Forms W-2, 1099, or 4137, the deduction is above-the-line, benefiting both standard and itemized filers. For example, a server earning $15,000 in tips could save $1,500 to $5,550 annually, depending on their tax bracket. However, low-income workers taking the standard deduction (about $15,750 for singles in 2025) may see minimal benefits, and the policy expires in 2028 unless extended.
The OBBBA extends the 2017 Tax Cuts and Jobs Act, preventing a $4.5 trillion tax hike, and includes other benefits like a $12,500 overtime pay deduction, an expanded child tax credit, and auto loan interest deductions for American-made vehicles. Treasury Secretary Scott Bessent calls it a remedy for the “affordability crisis,” projecting wage increases of $3,400 to $7,200 for many workers. The Tax Foundation estimates a 1.2% GDP boost and nearly one million jobs created or protected, but critics argue the $3.4 trillion deficit increase and cuts to Medicaid and SNAP could harm low-income tipped workers.
Economists note the policy affects only 2.5% of the workforce, limiting its broader impact. There’s concern about workers shifting to tipped jobs or employers reclassifying income to exploit the deduction, prompting Treasury oversight. Workers can claim the deduction starting with 2025 tax filings, with employers needing to designate tips on tax forms. The Treasury will finalize the job list by October 2, 2025, after public input, and workers are advised to consult tax professionals to navigate the changes. While the OBBBA offers immediate relief for some, its long-term effects remain debated amid concerns over fiscal sustainability and equity.
