Good news for workers in tip-based jobs! Starting in 2025, there’s a new tax deduction for tips that could help you save money. Here’s a quick and simple breakdown:
What’s the New Deduction About?
If you work in a job where you regularly earn tips, you may be able to deduct those tips from your taxable income. Here’s how it works:
- What Tips Qualify?
- Tips you get in cash or on a credit card from customers.
- Tips you receive through tip-sharing with coworkers.
- How Much Can You Deduct?
- Up to $25,000 per year.
- If you’re self-employed, your deduction can’t be more than what you earned from your business.
- Income Limits:
- The deduction starts to phase out if your income is over:
- $150,000 for single filers.
- $300,000 for couples filing jointly.
- The deduction starts to phase out if your income is over:
Who Can Use This Deduction?
Most workers in tip-based jobs can claim this deduction, but there are some exceptions:
- Who’s Eligible?
- Both people who itemize their deductions and those who don’t.
- Who’s Not Eligible?
- Self-employed workers in certain types of service businesses (like consulting or financial services).
- Employees whose employers are in those service businesses.
- What’s Required?
- Make sure your Social Security number is on your tax return.
- If you’re married, you’ll need to file jointly to claim this deduction.
What Do Employers Need to Do?
Employers and others who pay tips will need to:
- Report tips to the IRS or Social Security Administration.
- Very Important Give workers statements showing how much they earned in tips and their job title.
This new deduction is a great way for workers in tip-based industries to keep more of their hard-earned money. Be sure to check if you’re eligible and follow all the rules so you can take advantage of it!
