--- title: "One Big Beautiful Bill Act Update Series: No Tax on Tips" description: The OBBBA allows tipped workers to deduct up to $25,000 in tip income received from their federal taxable income for tax years 2025 through 2028 image: https://info.ongandcompany.com/hubfs/Backgrounds/Kansas-City-Missouri-1.jpg --- [![](https://info.ongandcompany.com/hubfs/Backgrounds/ong-final_sig.jpg)](http://www.ongandcompany.com/) # One Big Beautiful Bill Act Update Series: No Tax on Tips [Miguel Padilla](https://info.ongandcompany.com/blog/author/miguel-padilla) / July 25, 2025 / [Tax Planning](https://info.ongandcompany.com/blog/topic/tax-planning), [Tax Deductions](https://info.ongandcompany.com/blog/topic/tax-deductions) ![](https://info.ongandcompany.com/hubfs/MP.jpg) The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4th, 2025. One key change included as part of the tax bill is a new federal law that allows tipped workers to deduct up to $25,000 in tip income received from their federal taxable income. This provision applies to tax years 2025 through 2028.   What Has Changed? Federal Deduction on Reported Tips - You can now deduct up to $25,000 in tip income received (including cash tips and tips paid via card or check) from your total income when filing federal taxes. - Prior to the new law, the IRS treated all tips – whether cash or non-cash – as taxable income without an allowed deduction to offset tip income.  - The deduction is subject to income limitation and phases out for taxpayers with modified adjusted gross income exceeding $150,000 ($300,000 for joint filers). - The deduction applies to occupations that the IRS lists as customarily and regularly receiving tips; hospitality, food and beverage, beauty and personal care, transportation, etc. - The deduction does not reduce Social Security or Medicare taxes (FICA still applies). - For self-employed individuals, deduction may not exceed individual’s net income (without regard to this deduction) from the trade or business in which the tips were earned. - The deduction is temporary and ends after tax year 2028 unless extended. - The IRS will release a full list of eligible job types for the qualified tips for deduction eligibility along with additional guidance by October 4th, 2025 - The deduction may not be available on state tax returns as the One Big Beautiful Bill Act only allows for this deduction on your federal tax return.   What Has Changed? Expanded FICA Tip Credit Eligibility for Employers  - This bill also expands eligibility for the FICA tip credit for employers. - The tip credit allows employers to receive a credit to offset income taxes up to the amount they pay in the employer share of Social Security and Medicare taxes (currently 7.65%) on qualified tips. - The new law broadens eligibility for this credit as it now includes personal service industries such as barbershops, beauty salons, nail salons, and spas and not limited to food and beverage businesses.   What Actions Should You Take Now? - Track tip income received separately from other compensation / income and save tip records for tax filings.  - Ensure tips paid are correctly reported on employee W-2 forms and processed accurately in payroll systems. - Stay tuned for IRS and state tax updates regarding eligibility and qualifying industries.  - Adjust income tax withholding and/or estimated tax payments accordingly if this deduction will impact you.  - Employers - confirm if eligibility FICA tip credit and claim on business tax returns if applicable.                 If you have any questions about the opportunities listed above, or if you would like to schedule an appointment to understand the impact of these changes on your situation, please do not hesitate to contact our team. 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