Money Map Tip of the Week

On October 25, 2025, in Latest News, by The Somerville Times

Q: Are there any tax breaks for tips under the new 2025 tax law—and what should I know about them?

A: Yes! If you work in a job where tips are common—like food service, salons, or hospitality—the new One Big Beautiful Bill tax law offers a unique opportunity: up to $25,000 of your reported tips can be deducted from your federal income taxes for tax years 2025 through 2028.

Here’s what to keep in mind:
• This isn’t tax-free income—it’s a deduction, which means it can lower your taxable income and potentially reduce your tax bill.
• The $25,000 cap applies per tax return, regardless of filing status (so joint filers don’t get more).
• The deduction phases out at higher income levels: it begins to disappear for individuals earning over $150,000, or $300,000 for married couples filing jointly.
• Only tips that are officially reported to your employer or the IRS count—cash tips not reported won’t qualify.
• This doesn’t affect payroll taxes—you’ll still pay Social Security and Medicare taxes on tip income, just like before.

Short-term impact: More tipped workers may see meaningful tax savings, especially those who report tips consistently.

Long-term angle: Employers may rely even more on tips as part of compensation structures—so keep an eye on how tipping norms shift in your industry. If tipping starts replacing wages, your tax return may change, but your total earnings might not.

Any questions? I’m Vincent Hicks, a CPA based in the Cambridge–Somerville area. Reach out at vincent@hickscpasolutions.com or (859) 553-0788.

Disclaimer: This column provides general financial information and should not be considered legal, investment, or tax advice. Always consult a qualified professional for personal guidance.