BECKLEY, WV (WOAY) – The No Tax on Tips Act rules taking effect in 2026 will change how tips are taxed under the Big Beautiful Bill.
Local tipped workers are preparing for what that means for their take-home pay and tax filing, allowing them to deduct up to $25,000 of qualified tips.
“These people often receive tips. But as a self-employed person, you don’t often receive a 1099. For that group of people, your tips are still taxable,” said TR Tax Accountant Tony Martin. “No such thing as No Tax on Tips.”
According to Martin, the caveat is that No Tax on Tips doesn’t actually mean No Tax on Tips.
“It’s only the federal income tax that the tips are deducted from. You still have to pay your Social Security and medicare tax on those tips,” the accountant said. “Not really going to see a difference in your pay.”
While the IRS says six million workers report tipped wages, the No Tax on Tips won’t benefit some of those tipped workers.
“I thought it was going to be great, but, I mean, it’s only to a certain amount,” said Beckley Omelet Shoppe Server Emilee Hinzman. “And some servers won’t be able to claim that, some will.”
You have to be a customarily tipped employee, such as bartenders, waitresses, waiters, barbers, beauticians, or dog groomers.
“The other limitation is an income limitation,” Martin said. That’s $150,000 for an individual or $300,000 for a married couple filing jointly. If your income is above that, then this deduction begins to phase out.”
If you have unreported tips – as in you’re pocketing the cash and nobody knows about it but you…
“You can’t turn around and try to say, ‘hey, inflate my number of tips’ that I’m able to deduct from my gross income. They have to be reported to the employer and then reported on your W-2 form,” said the accountant.
As a server, it may be your main source of income.
“Your hourly wages are practically nothing,” Hinzman said. “So if your hourly wage is nothing, your paycheck is nothing, and you’re getting exempt taxes on tips — you’re not coming out ahead at all.”
