Trump’s tax bill includes broad exclusion for tip income. It expires in 2028

President Donald Trump's new tax and spending law will give most workers a tax break on some tipped income. At least until 2028, when the provision expires.

Trump made lifting the taxation of tips a cornerstone of his populist economic policy in the 2024 campaign. Trump unveiled it during a campaign stop in Las Vegas, home to many hospitality workers, and it became sufficiently popular that his opponent, then-Vice President Kamala Harris, endorsed the idea as well.

About 2.5% of workers are in tipped jobs, including 5% of workers in the bottom quarter of earners, a Yale Budget Lab analysis found.

The law Trump signed July 4, which he called the One Big Beautiful Bill, lets service workers deduct up to $25,000 of tip income from their taxable income each year, as long as they earn less than $150,000 (for a single filer) or $300,000 (for joint filers). Households above those income levels — but earning up to $275,000 (for single filers) or $550,000 (for joint filers) — can take a reduced deduction.

Available federal data suggests that these limits should cover all tipped earnings for a majority of tipped workers, and much of the tipped income for the rest.

Federal data shows that the median yearly wages for restaurant servers; barbers and hairstylists; taxi drivers; and baggage porters, bellhops and concierges all range from $33,000 to $37,000.

Research by the payroll firm ADP found that in September 2024, 43% of restaurant servers' wages came from their base salary, with the remaining 57% from tips. This means that for the median server, a little over $19,000 came from tips, which is within the new law's limit. 

The federal data shows that a server in the top 25% of the income spectrum earned more than $45,000 in wages, and the ADP data suggests that $25,800 of this would be in tips. So nearly the bottom three-quarters of the income range for servers would get all of their tipped income tax free.

Servers earning more than this would receive significant — but not complete — relief from tip taxation.

The law Trump signed doesn't eliminate taxation on every tip, but the cutoffs are generous enough that most tipped employees will see no taxation of their tips, and the rest will see partial tax relief. 

We rate it a Promise Kept.

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