OBBBA Tip Income: What Employees Need to Know

If you work in the service industry, tips aren’t just extra — they’re a big part of your paycheck. The OBBBA tip income deduction introduces a major change: a temporary tax break that allows eligible workers to deduct up to $25,000 of tips.

Here’s what this means for servers, bartenders, stylists, and other tipped workers — and how it could put more money back in your pocket.

For a full overview of the new law, see our article on the OBBBA 2025 tax changes, which covers the broader provisions beyond tip income.

---

The New “No Tax on Tips” Deduction

Who Qualifies?

• You must work in a role where tips are customarily and regularly received (think restaurant servers, bartenders, salon workers).
• Only voluntary tips (cash, credit card, or pooled tip-sharing) count as qualified tips.
• High earners may see the benefit reduced: the deduction phases out starting at $150,000 for single filers and $300,000 for couples filing jointly.

The U.S. Department of Labor has additional rules on tipped employees and tip regulations, which may also affect how tips are handled in the workplace

How It Will Show Up on Your Taxes

• Starting in 2026, your W-2 form will include a special box or code showing how much of your tips are “qualified” for the deduction.
• For 2025, your employer will need to provide you an estimate covering the entire year (including the months before OBBBA was signed).
• You’ll still need to keep good records — daily tip logs, POS reports, or pay stubs — to make sure what’s reported matches what you earned.

Why This Matters for You

• Lower tax bills: Deducting up to $25,000 in tips could reduce your taxable income and the amount you owe at filing.
• More accurate planning: If tips are a big part of your income, you’ll want to update your withholdings or estimated payments to avoid surprises.
• Temporary opportunity: The deduction only applies for 2025–2028 unless Congress extends it. ready for the administrative requirements that come with it.

Quick Example: OBBBA Tip Income

Let’s say you earn $20,000 in wages and $18,000 in tips in 2025.

• Without OBBBA, you’d pay federal income tax on $38,000.
• With OBBBA, you can deduct up to $18,000 (since it’s under the $25,000 cap), and only pay federal income tax on $20,000.
  

That could mean thousands of dollars in savings, depending on your tax bracket.

What You Should Do Next

✅ Track your tips daily — don’t rely only on your employer’s reports. The IRS provides guidance on tip recordkeeping and reporting.
✅ Review your pay stubs and W-2 carefully to make sure qualified tips are reported correctly.
✅ Plan ahead — this deduction reduces taxable income, but you’ll still owe payroll taxes.
✅ Stay updated — rules may shift as the IRS clarifies how “qualified tips” are defined.

Key Takeaway: OBBBA Tip Income

The OBBBA of 2025 offers service-industry workers a rare opportunity to save on taxes. By keeping good records and understanding how the deduction works, you can maximize your benefit during these four years.

At Beckley & Associates PLLC, we work with clients across Plano, Dallas, and the North Texas area and beyond to stay ahead of tax law changes and highlighting opportunities such as the OBBBA tip income deduction. If you earn tips as part of your income and want to understand exactly how the OBBBA affects your situation, our team is here to help.

👉 Ready to maximize your tax savings?

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Please consult with your tax advisor regarding your specific situation.