In brief
The U.S. Treasury is closer to implementing President Trump's 'no tax on tips' promise, detailed in new guidance that defines eligible jobs and 'qualified tips'. The provisions, effective retroactively from January 1, 2025, aim to exclude federal income taxes for certain tipped workers, though many will see limited benefits due to exclusions and income caps.
The Treasury Department is making strides towards fulfilling President Trump's 'no tax on tips' promise with new proposed regulations released Friday. These guidelines specify which occupations qualify for tax-exempt tips and how to calculate 'qualified tips'. Employees in traditionally tipping professions can benefit from tax deductions of up to $25,000 from 2025 to 2028, although modifications will restrict eligibility for high-income earners. Only voluntary tips, not automatic gratuities, will count towards this deduction. The final implementation will apply retroactively from January 1, 2025, impacting around 4 million tipped workers, while raising concerns about a projected $40 billion increase in the federal deficit over the next five years.
