IRS Delays Restriction on Tip Tax Break for Certain Professions, Offering Expanded Relief for 2025 Taxes
WASHINGTON – The Internal Revenue Service โ(IRS) has issued guidance clarifying how workers can claim deductions under the “No Tax on โTips” law for the โ2025 tax year,โ and has delayed enforcement of a restriction that would have limited the benefit for โขthose in specific service trades or businesses.โ The guidance, released Friday, could broadenโข access to the tax breakโค for millions of workers.
The “No Tax on โTips” provision,originally enacted as part of “The One Big beautiful Bill” signed into law by โขPresident Donald Trump,aims to eliminate federal income tax on tips for eligible employees.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 byโข not โฃhaving to pay tax โคonโค those tips.
However, initial interpretations of the law included a provision that would โฃhave prevented โคworkers in certain fields – โฃincluding health, law, โขperforming arts, and athletics – from claiming the deduction. The IRSโค proclamation states thisโ restrictionโค 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 shiftsโข in โhow tips โare handled, potentially increasing reliance on tips in existing occupations and the emergence of tipping in new โfields. There are alsoโข concerns about potential misclassification of income and disparities in taxation for workers โearning similar incomes.
The changeโข is also expected to accelerate the trend toward digital tipping platforms, as accurate record-keeping becomes โฃmoreโฃ critical for both businesses andโ workersโ navigating the new tax reporting requirements.