Why some workers won’t benefit from the deduction

As tax season approaches, millions of workers may soon be able to claim the “no tax on tips” deduction, which offers a tax break for returns filed in 2026. However, some experts question which workers will benefit from this policy.

The law, which came into force with President Donald Trump’s “big, beautiful bill”, opposite It allows some employees to deduct up to $25,000 a year in “qualified tips” from federal income from 2025 through 2028.

The tip deduction phases out or decreases when modified adjusted gross income exceeds $150,000 for single filers or $300,000 for married couples filing jointly.

Both Trump and former Vice President Kamala Harris claimed there would be “no tax on tips” during the 2024 presidential campaign. Republicans enacted the cap cut through their multi-trillion-dollar tax and spending package in early July.

Approximately 6 million workers Report tipped wagesThat’s according to IRS estimates released in November. But not all tipped workers qualify.

Both parties supported a “no tip tax” deduction as a tax cut for working families. But experts say the country’s lowest-income segments may not be able to claim it.

“Low-income families don’t benefit from the tip tax because they don’t already pay federal income taxes,” Elena Patel, co-director of the Urban-Brookings Tax Policy Center, told CNBC.

For 2025, workers won’t owe federal income taxes until their earnings exceed the standard deduction ($15,750 for singles or $31,500 for married couples filing jointly). On top of this, certain tax deductions, e.g. The earned income tax credit can also reduce liability below zero.

More than a third, or 37%, of tipped workers in 2022 I didn’t owe federal income taxes due to lower income, according to a 2024 report from the Budget Lab at Yale, a nonpartisan policy research center.

Analysis by the Tax Policy Center, a nonpartisan think tank, showed similar findings. If tips were tax-free or tax-exempt, only about 60% More tipped employees will benefit, the organization reported in early 2025.

Since the policy was first implemented, there have been questions about which occupations are eligible for the “no tip tax” deduction.

Treasury Department and IRS issued a statement Preliminary job list for September. However, some workers who receive tips through the so-called “specified service trades or businesses,” or SSTBs operating in healthcare, legal, financial services, performing arts and other industries are not eligible for the tax deduction.

However, SSTB employees may temporarily claim the deduction for 2025 until the Treasury and IRS finalize regulations. “transitional relief” It was published by agencies in November.

Because of continued uncertainty about eligibility, “it’s possible to confuse people into thinking they’ll be eligible for it in future years,” said Garrett Watson, director of policy analysis at the Tax Foundation.