Congress approved a significant adjustment to taxes for tipped workers in the U.S. The One Big Beautiful Bill Act allows workers to deduct $25,000 in tips annually from their taxable income. Those earning over $150,000 will have their tips taxed. The act aims to prevent high earners from improperly classifying income as tips. It restricts tax-free tips to specific occupations, though these jobs are not clearly defined. The law will expire at the end of 2028 unless extended by Congress.
After the provision goes into effect, workers will be able to deduct $25,000 in tips annually from their taxable income. After that, tips will be federally taxed.
If a worker makes more than $150,000 a year, though, their tipped income will start to be taxed. That helps to sort of carve out some of the very high earners who may be incentivized to recharacterize their income tips inappropriately.
The package also restricts tax-free tips to workers at 'an occupation which customarily and regularly received tips', but the text does not define these jobs individually.
The law, if not extended by Congress at a later date, will phase out at the end of 2028, near the end of Trump's presidency.
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