In a speech delivered in Las Vegas, Nevada, on January 25th, 2025, President Donald Trump dropped a huge surprise. We certainly loved that he proposed a “big beautiful bill” to completely abolish all taxes on tips for workers in certain lucrative occupations. This proposal has garnered bipartisan interest. Republicans and Democrats alike rejected the notion of tax breaks on tips during the 2024 campaign.
Today, nearly 4 million U.S. workers hold tipped occupations, making up about 2.5% of the workforce. Under Trump’s proposed legislation, the tax break would be effective from 2025 through 2028, allowing eligible workers to benefit significantly.
Things aren’t so simple as the proposed deduction comes with some caveats. To be eligible for the deduction, you need to report your tips appropriately. The tax break starts phasing down for an individual’s modified adjusted gross income over $150,000. For eligible individuals, the new deduction could be up to $25,000.
Certified financial planner Ben Henry-Moreland shared his skepticism about the supposed voluntary choice in tips transactions when it comes to this new legislation. He remarked, “Based on the plain text of the law, it’s hard to argue that that’s something that’s given voluntarily.”
Alex Muresianu, a senior policy analyst at the far-right Tax Foundation, argued that tips are “an entirely voluntary transaction.” This characterization raises vital questions. How would the proposed income tax break align with existing rules around reporting income and taxing it?
The upcoming changes in tax reporting thresholds have snared the attention of financial professionals. By 2026, the amount that triggers 1099-NEC reporting—contractor income—will rise from $600 to $2,000. In 2025, the 1099-K reporting threshold will revert back to $20,000. You’ll need at least 200 transactions to exceed this new limit, another huge change from the previous $2,500 threshold.
Larry Gray is a Missouri-based certified public accountant. He serves as the IRS liaison to the National Association of Tax Professionals, and he recently testified about the confusion involved with the proposed bill. He admitted that trying to understand its implications is like trying to see into a “crystal ball.” The lack of clarity about how these sweeping changes will affect workers and employers further complicates this contentious discussion.
If implemented correctly, the proposal could help millions of hardworking tipped workers escape their current financial precariousness. Specialists once again stressed a lack of clarity on guidelines for reporting income and determining eligibility. As the bill progresses, stakeholders from many sectors will surely have much more to say about its possible impacts.