NO TAX ON TIPS: Here is what Trump's tax bill means for tipped workers.

Hi Friends

Today we are digging into another piece of Trump's tax Bill, signed into law on July4, 2025. The headline getting all the attention is , "No Tax On Tips." What does Trump's tax bill mean for tipped workers in Sebastopol and all of Sonoma County with our significant hospitality industry. Let's slow down and really figure out what this change does and doesn't do if part of your take home pay is in your tips.

What The Bill Says:

Starting this coming tax season with your 2025 filing return, tipped workers can deduct of up to 25,000 of Qualified Tips from federal tax income. That can reduce and even eliminate federal income tax on tips for some people. The deduction is available 2025 thur 2028 and begins to phase out over $150,000 MAGI ( MAGI) for single filiers and $300,00 for joint filers. It applies even if only one spouse earns tips. The IRS will issue more definitions and examples as guidance rolls out.

Wine country table.

What it Doesn't Do:

This isn't and total free pass. Tip Income is still taxed and has rules. Expect:

• Social Security and Medicare payroll taxes still apply to tips.

• State and local income taxes may still apply, depending on where you live.

Who it Helps:

This targets people who customarily receive tips as part of their job, such as restaurant staff and salon professionals. It is not meant for people to re-label normal payments as tips. The IRS will publish and update which occupations qualify under Trump’s Tax Bill, and current language covers both cash and charged tips when properly reported.

Reporting and Paperwork:

You must keep reporting tips. Employers and payroll providers will need to track and report tip income properly on W-2/1099 We await IRS reporting guidance on exactly how qualifying amounts will be shown. If we run your payroll, we’ll reach out about any setup we need. If you’re unsure how this interacts with your return, book a tax preparation review or tax consulting & optimization session so we can look at your situation. For general reporting rules, see IRS Publication 531 and the Form 4137 instructions.

My Take

Helpful for some but not the game-changer you're hearing about. For clients who already report tips accuratly, this may lower federal tax a bit. It also adds complexity the industry will need to manage. Plan , document and don't chase headlines like 'no tax on tips in Trump Tax Bill' because that isn't entirely accurate.

FAQs

Which Tips are "qualified Tips"?

The IRS is expected to treat reported tips that meet the stamdarad tip rules eligible. That generally includes cash, credit card, and pooled tips that are properly reported. Watch IRS updates as the definitions finalize. See IRS Publication 531.

Do I still owe payroll taxes on tips?

Yes. FICA still applies to tip income. This change targets federal income tax only, with phase-outs for higher incomes.

What if I forgot to report tips earlier in the year?

You may need to self-report using Form 4137 instructions and keep contemporaneous records. If that’s you, schedule a tax preparation appointment so we can clean it up before year-end.

Are service charges the same as tips?

No. Mandatory service charges are usually treated as wages, not tips. Treatment can vary by employer setup and state rules. When in doubt, book tax consulting for a quick review.

Key takeaways

• Up to $25,000 tips deduction for qualifying workers, 2025–2028.

• Phases out over $150k single / $300k joint MAGI.

• Payroll and state/local taxes may still apply.

• Keep reporting tips and await IRS reporting guidance.

Warmly,

Melissa Ochoa

Enrolled Agent & Owner, Apple Blossom Tax Service

Serving Sebastopol and Sonoma County