Trump Proposes “No Tax on Tips” in New Policy
On January 25, 2025, President Donald Trump unveiled his policy aimed at eliminating taxes on tips in Las Vegas, Nevada.
Part of Trump’s initiative, titled “Big Beautiful Building,” features a proposal known as “No Tax on Tips.” This concept emerged during the election campaign, attracting bipartisan attention.
Though regulations about this idea have been established, there are still unanswered questions regarding the tax credit’s application and eligibility requirements.
Notably, “No Tax on Tips” doesn’t eliminate taxes on salaries or tips that fall under state tax regulations. It’s more like a deduction valued up to $25,000, which can be claimed from 2025 to 2028—though it will phase out for those with adjusted gross income over $150,000.
The IRS is expected to clarify which occupations qualify for this deduction by early October. In the meantime, experts, like certified accountant Larry Gray from Missouri, say they’re just trying to “look into the crystal ball.”
Overview of Trump’s Tip Deduction
The specifics surrounding “qualified tips” include cash tips—those given directly by customers or added to credit card payments—as well as those received under tip-sharing arrangements. However, the law makes it clear that these tips must be voluntarily given, as noted by Tax Foundation analyst Alex Muresianu.
This has led to some ambiguity. For instance, mandatory service charges, like an automatic tip for large parties, may not qualify. As certified financial planner Ben Henry Moreland points out, arguing that such charges are voluntary doesn’t align well with the law’s text.
Requirements for Reporting Tips
For workers to benefit from the deduction, it is crucial that tips are accurately reported. This means employers should provide necessary information through forms like W-2 and 1099, which are shared with both employees and the IRS.
However, recent changes have raised the revenue reporting thresholds, causing potential eligibility issues for workers who may not receive these forms. For example, while Form 1099-K details business transactions through apps like PayPal or gig economy platforms, the reporting threshold is being increased to $20,000 and 200 transactions by 2025.
Starting in 2026, the threshold for reporting contract revenues via 1099-NEC will also rise significantly.
Still, there remains uncertainty about whether employees will fully disclose cash tips to their employers and the IRS. Henry Moreland expressed concern, saying the crux of the issue revolves around the “no tax on tips” proposal—many tips probably haven’t been reported to begin with.
