TAX GUIDE
No Tax on Tips — what it actually means for your April.
The No Tax on Tips deduction became law in 2025. For tipped service workers, it's the largest federal income-tax change in a generation. But the law has teeth: deduct without documentation and you're filing a return the IRS can disallow on audit.
What the deduction covers
Qualified cash tips received in the course of an occupation that customarily and regularly received tips on or before December 31, 2024. Servers, bartenders, barbacks, bussers, hosts, hotel and casino service staff are all covered.
What it doesn't cover
Mandatory service charges (these stay taxable as wages), automatic gratuities pooled into payroll, and tips received in occupations not historically tipped.
The documentation requirement
You need to be able to show, for any audited shift, what you earned and when. OTF signs each shift at the time you log it — that satisfies the "contemporaneous record" standard better than a back-of-envelope reconstruction in March.
The phase-out
The deduction phases out beginning at $150K MAGI per current IRS guidance. Most floor workers will see the full benefit.