IRS Delays Restriction on Tip Tax Break for Certain Professions, Offering Expanded Relief for 2025 Taxes
WASHINGTON – The Internal Revenue Service (IRS) has issued guidance clarifying how workers can claim deductions under the “No Tax on Tips” law for the 2025 tax year, and has delayed enforcement of a restriction that would have limited the benefit for those in specific service trades or businesses. The guidance, released Friday, could broaden access to the tax break for millions of workers.
The “No Tax on Tips” provision,originally enacted as part of “The One Big beautiful Bill” signed into law by President Donald Trump,aims to eliminate federal income tax on tips for eligible employees. The White House estimates approximately 6 million workers report tipped wages, and the average American could see an increase of around $1,300 annually by not having to pay tax on those tips.
However, initial interpretations of the law included a provision that would have prevented workers in certain fields – including health, law, performing arts, and athletics – from claiming the deduction. The IRS proclamation states this restriction will not be enforced until a year after final regulations are released,effectively extending the full benefit to these professions for the 2025 and likely 2026 tax years.
The IRS guidance addresses concerns raised by workers unsure how to report tips for the 2025 tax year, particularly those lacking complete records from employers.
Experts previously noted the policy could lead to shifts in how tips are handled, potentially increasing reliance on tips in existing occupations and the emergence of tipping in new fields. There are also concerns about potential misclassification of income and disparities in taxation for workers earning similar incomes.
The change is also expected to accelerate the trend toward digital tipping platforms, as accurate record-keeping becomes more critical for both businesses and workers navigating the new tax reporting requirements.
