Temporary Tax Break on Tips Included in New Fiscal Law

On July 4, President Trump signed into law a Republican-backed fiscal package that introduces a temporary tax exemption on tips for eligible workers. This provision aims to provide financial relief to millions of Americans who earn income through gratuities.

Scope and Implementation of the Tax Break

The legislation, informally called the "big, beautiful bill," required the Trump administration to identify which occupations qualify for this tax break within 90 days of its enactment. The Treasury Department has now released a preliminary list featuring 68 occupations. This list includes traditional tipped roles such as waiters, but also extends to professions not commonly associated with tips, including plumbers, electricians, and air conditioning repair technicians.

Although this list is not yet final and awaits publication in the Federal Register, the Treasury Department has indicated that the IRS expects the final version to closely resemble the current one. This broad inclusion reflects an effort to extend the benefit beyond the hospitality sector.

Financial Impact and Limitations

The White House estimates that qualifying workers could save approximately $1,300 each under this new tax rule. However, some limitations within the law may restrict the overall benefit. For example, workers in occupations that rarely receive tips might not experience significant gains despite being on the list.

According to a September 2 blog post by the law firm Fisher Phillips, the hospitality industry stands to gain the most from this policy change. The firm highlighted that workers in this sector are the primary beneficiaries of the tax exemption on tips.

Eligibility Criteria and Restrictions

To qualify for the tax break, workers must meet several conditions:

  • Their occupation must appear on the Treasury Department’s approved list of jobs eligible for the "no tax on tips" provision.
  • Annual earnings must be below $150,000 for individuals or $300,000 for married couples filing jointly.
  • Workers can claim a maximum of $25,000 per year in tipped income under this exemption.
  • The provision is temporary and will remain in effect only through 2028.

These restrictions are designed to target the tax relief to lower- and middle-income workers who rely on tips as a significant part of their earnings.

Next Steps and Official Responses

The Treasury Department and the White House have not yet provided further comments on the preliminary list or the implementation details. The final list’s publication in the Federal Register will mark the next official step in enacting this tax break.

As the provision takes effect, eligible workers and employers will need to stay informed about the specific guidelines to maximize the benefits of this new tax policy.