On July 4, President Donald Trump signed the “One Big Beautiful Bill Act” into law, enacting a comprehensive tax and spending package that includes a significant provision affecting tipped workers.
The legislation allows eligible employees to deduct up to $25,000 in reported tip income from their federal taxable income annually, starting with the 2025 tax year.
Not sure how this tax law works? Here’s what to know.
When does no tax on tips start in Texas?
Beginning with the 2025 tax year (for returns filed in early 2026), eligible workers can deduct up to $25,000 in reported tip income from their federal taxable income.
The deduction does gradually phase out for individuals earning more than $150,000 ($300,000 for joint filers) and is set to expire after the 2028 tax year.
Here’s how it works:
Is there anything no tax on tips doesn’t cover?
The bill exclusively applies to cash tips. Yet, for IRS tax purposes, tips received in cash, via credit cards, or through electronic payment platforms are generally treated the same. While non-cash tips remain taxable under IRS rules, they fall outside the scope of this legislation.
Here’s what the ‘no tax on tips’ provision does not include:
Are tips supposed to be taxed?
According to the Internal Revenue Service, any tips of $20 or more that an employee receives in a month from one job are considered wages and are subject to withholding.
Cash tips received by an employee during any calendar month are also subject to Social Security and Medicare taxes and must be reported to the employer. However, if the total cash tips received from a single employer in a single calendar month are less than $20, they do not need to be reported, and no taxes need to be withheld.
Here is what the tax code considers taxable tips:
-USA TODAY Network J. Staas Haught and Zac Anderson contributed to this report.
This article originally appeared on Austin American-Statesman: Did no tax on tips start in Texas? What the ‘Big Beautiful Bill’ means for tipped workers
Reporting by Marley Malenfant, Austin American-Statesman / Austin American-Statesman
USA TODAY Network via Reuters Connect
