No Tax on Tips

Episode 65:  In this episode, Timalyn continues the discussion begun in Episode 64 about the One Big Beautiful Bill Act.  Today, she’s explaining the no tax on tips deduction. If there is any part of this new tax law that you’d like to hear her cover, please let us know.

No Tax on Tips

Timalyn jumps right in to let listeners know that tips are still considered taxable income. In order for them to be deducted, they must also be reported to the IRS.

The One Big Beautiful Bill Act created a new section in tax law that allows a maximum of $25,000 in qualified tips to be deducted from an eligible taxpayer’s returns. This deduction is available for tax years 2025 - 2028. 

To be eligible, the taxpayer must have a Social Security number. The social security number must be administered by the social security administrator prior to the due date of the tax return. 

The tip is limited to the amount the taxpayer earned in qualified tips or $25,000, whichever is less. 

For single taxpayers, the deduction begins to phase out once their modified adjusted gross income (MAGI) reaches $150,000. For taxpayers filing jointly with their spouse, that MAGI limit doubles to $300,000, but the deduction remains at $25,000.

This deduction is not available to married taxpayers filing their taxes separately from their spouse.

For every $1,000 the taxpayer goes over the MAGI limit, their deduction is reduced by $100. 

The deduction is also available to self-employed taxpayers. They can only take the deduction up to the amount of their net income. It cannot create a loss. 

Qualified tips must be cash and voluntary. This means that the payor has to select the amount of the tip. Tips earned in a tip-sharing arrangement or charged to a card count as cash tips for the purposes of this deduction. 

Qualified tips will be found on the taxpayer’s W-2, wage statements, contractor’s 1099-NECs, and on third-party payment processing Form 1099-K. Taxpayers who report unreported tips on Form 4137 may also use that form to show their qualified tips. 

Timalyn warns taxpayers that this is the year they may not want to let a family member who is not a professional handle their taxes. There are a lot of mid-year changes that, if not handled correctly, can lead to tax issues. 

Need Tax Help Now?

If you need answers to your tax debt questions, book a consultation with Timalyn via her Bowens Tax Solutions website.  Click this link to book a call.

Please consider sharing this episode with your friends and family.  There are many people dealing with tax issues, and you may not know about it.  This information might be helpful to someone who really needs it.  After all, back taxes shouldn’t ruin their life either.

As we conclude Episode 65, we encourage you to connect with Timalyn on social media. You’ll be able to subscribe to this podcast on Spotify, Apple Podcasts, YouTube, and many other podcast platforms. 

Remember, Timalyn Bowens is America’s Favorite EA, and she’s here to fill the tax literacy gap, one taxpayer at a time.  Thanks for listening to today’s episode.

For more information about tax relief options or filing your taxes , visit https://www.Bowenstaxsolutions.com/ .

If you have any feedback or suggestions for an upcoming episode topic, please submit them here:  https://www.americasfavoriteea.com/contact.

Disclaimer:  This podcast is for informational and educational purposes only.  It provides a framework and possible solutions for solving your tax problems, but it is not legally binding.  Please consult your tax professional regarding your specific tax situation.