No Federal Income Tax on Tips (2025–2028)

For many workers in the service industry, tips are a major part of income. Starting in 2025,

you may not have to pay federal income tax on your tips — up to $25,000 per year.

This policy is designed to help servers, bartenders, hairstylists, delivery drivers, and other service workers keep more of what they earn.

Which Tips Count?

All reported tips from:
• Cash
• Credit card payments
• Digital apps or payment systems

Who Qualifies?

• Employees who report tips to their employer
• Self-employed people who earn tips (up to their net business income)

High-income earners may see a reduced benefit:
• Phase-out begins at $150,000 MAGI (single)
• $300,000 MAGI (married filing jointly)

What Still Applies?

Even with this major change:
• You must still report all tips to your employer and the IRS
• Tips are still subject to Social Security and Medicare taxes (FICA)
• Employers must still include tips on your W-2

Failing to report tips can still lead to penalties.

How Will This Affect Your Tax Return?

• Your take-home pay increases throughout the year
• Your refund may be smaller if you rely on tax withholding
• You may need to adjust your W-4 or estimated taxes
• Some credit calculations (like Earned Income Tax Credit) may change

We Help You Maximize This Benefit

Tax laws can be confusing, especially with new rules. A tax professional can help you:

• Stay compliant
• Understand how the change affects your refund
• Get the maximum benefit from the new tip exemption

If you earn tips, we are here to help you file confidently and correctly.