Death & Tip Taxes? Not Anymore - Kind Of

On July 4, 2025, The One Big Beautiful Bill Act (OBBB) was signed into law by President Trump. With a stroke of a pen, the foundation of "no tax on tips" is laid. 

This new tax code created a federal income tax deduction, meaning it reduced taxable income and, by extension, tax liability for the person claiming it. The tip deduction maxes out at $25,000 per year, and it is available regardless of whether a taxpayer takes the standard deduction or itemizes. 

Upon reaching $150,000 of modified adjusted gross income, or a married couple surpassing $300,000 of modified adjusted gross income, the deduction phases out at a 10% rate until it reaches $0. For a single taxpayer claiming the maximum $25,000, the deduction would reach $0 at $400,000 of modified adjusted gross income. For a married couple claiming the max, the deduction would reach $0 at $550,000 of modified adjusted gross income. 

The deduction is limited to tips reported on an IRS Form W-2, 1099, or 4137, and it can only be used for tips earned in an occupation that "customarily and regularly received tips" before 2025. (More on that later.) A taxpayer must also have a Social Security number to qualify for the tips deduction. 

As of 2025, the deduction is written as a temporary provision of the tax code and applies from January 1, 2025, through December 31, 2028. Taxpayers with eligible tips can claim the deduction on 2025 tips when they file their taxes in early 2026, while in future years the deduction will be applied to tax withholding for some workers so that they experience lower taxes on each paycheck rather than a lump-sum benefit when they file their taxes. With that said, the deduction will end December 31, 2028, unless extended by an act of Congress. 

Now, as stated above, the "no tax on tips" only applied to tips earned in an occupation that "customarily and regularly received tips". The Treasury Department is required to publish a list of occupations eligible for the tips deduction by October 2, 2025.

As of September 22, 2025, the IRS has proposed a new rule, which outlines the occupations that are tipped. This rule is open to public comment until October 22, 2025. A few occupations include: 

• Skincare Specialists

• Massage Therapists

• Barbers, Hairdressers, Hairstylists, and Cosmetologists

• Shampooers

• Manicurists and Pedicurists

• Makeup Artists

• Eyebrow Threading and Waxing Technicians

Revision: A previous version of this article referred to the Act as the "One Big Beauty Bill Act," rather than the correct name, "One Big Beautiful Bill."

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