Changes to Tips and Taxation in the Restaurant Industry
Athena Young, a bartender at Atomic Kitchen in Las Vegas, shared insights on the establishment’s “tax-free on tips” policy during a recent conversation. The idea of not taxing tips has become quite a hot topic lately.
Maddie Lopez, a bartender from Los Angeles with 25 years in the industry, expressed skepticism about the proposed “no tax on tips” policy linked to President Trump. Upon hearing about it, her first thought was that it seemed a bit optimistic, maybe even unrealistic.
Lopez noted that tax credits often come with hidden strings attached, leading her to wonder whether the benefits would genuinely be as significant as some might hope. Experts highlight similar concerns: key details about eligibility for the policy remain vague, and many workers struggle to grasp how tax credits function.
Understanding the “No Tax on Tips” Initiative
Interestingly, both Republicans and Democrats have endorsed this idea during the 2024 presidential campaign. The provision under Trump’s “Big Beautiful Bill” allows deductions of up to $25,000, which can be claimed without itemizing other deductions, effectively reducing taxable income.
However, these deductions will begin to phase out once an individual’s adjusted gross income exceeds $150,000, and the benefits are only available temporarily—specifically, from 2025 to 2028.
Unfortunately, experts warn that while tips may be deductible, you won’t escape other taxes entirely, like payroll taxes for Medicare and Social Security. Plus, questions linger about how employers should report these tips for employees to qualify for the deduction.
Defining “Qualified Tips”
Regulations identify “qualifying tips” mainly as cash or card payments made voluntarily by customers, including amounts from sharing arrangements. Mandatory service charges, often added for large parties, generally do not qualify, creating confusion among workers.
Lopez has noticed this issue firsthand, saying that the way tips are mixed on tax forms can lead to misunderstandings.
Tipping Trends in Decline
Recent trends show a decrease in tipping across various sectors, possibly tied to shifting consumer sentiment. Reports indicate that average tips in restaurants and bars dropped from 15.17% to 14.99% in the second quarter of 2025.
Min Tai Ha, director of food and drinks at a tech services company, commented on this decline, attributing it—at least in part—to changing consumer confidence. Meanwhile, many Americans are expressing fatigue over tipping, with a rise in those feeling tips have become excessive.
Workers like Cooper have observed how rising service costs and consumer spending trends impact these changes. She pointed out that prices typically increase annually within her field, affecting overall service costs.
Lopez echoed this sentiment, noting that while tips were once more generous, like receiving $40 on a $200 tab, the average has decreased significantly, with a typical $100 tab now only yielding about $20 in tips.
