It’s almost August ’25, and over the past two years, we’ve heard a lot about potential changes to tax policies, which allegedly would benefit workers. Here’s what you need to know today about where that bill stands:

“NO TAX ON TIPS”

Yes, it’s better than nothing, but... The deduction is capped at $25,000 per year. And it’s reduced by $100 for every $1,000 of the taxpayer’s gross income over $150,000 ($300K if it’s a “joint return”). To make it a “qualified tip,” the amount must: 

• be paid voluntarily without any consequence in the event of nonpayment; 

• not be the subject of negotiation; and 

• be determined by the payor (“the customer”)

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And to qualify for the deduction this year, the employee must have received the tips on or before December 31, 2024. 

Some things that will not qualify:

• Mandatory service charges imposed by the employer for a banquet; 

• A gratuity for large groups that’s added by the restaurant automatically. 

CAPTAIN HR Advice:

• The Act doesn’t change the requirement for employees and employers to report 100% of tips received to the IRS. 

• We’ll know more about which jobs could claim the deduction once the Treasury secretary publishes their list of qualifying professions, around the end of ‘25.

• It’s vital that your employees understand the differences in the requirements, so they don’t try to claim deductions that aren’t permitted. Share this information with them to help educate your team. Beyond this advice though, Captain HR encourages you to refer employees to the specific tax records, or to a Tax Accountant. 

This information is provided for general knowledge only. It does not establish the provision of legal advice, tax advice, accounting services, or investment advice of any kind nor should it be taken as such.