What’s up with this no tax on tips business?

As we know, eligible workers can deduct up to $25,000 of qualified tip income from their federal taxable income. There’s confusion on how to report this.

For 2025, tips were still taxed during the year (or…should have been). On your tax return, eligible workers can claim a benefit related to tips, reducing taxable income and, by consequence…taxes owed.

For 2026-2028, however, the benefit is expected to be applied through payroll withholding; your employer is expected to adjust federal income tax so less tax is taken out per paycheck. Keep in mind, social security and medicare taxes are still required on tip income.

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