Tips non tax on tips is for cash only

[Figarosmom]

?si=SnEKOAduEwblUgOI

[lapfog_1]

1. not only that, but in the House version of the bill

you still need to declare the tip income... but you now get a tax deduction for that tip income. However, most people, especially in lower income tax brackets, only fill out the short form and never itemize deductions.

[Figarosmom]

3. Yeah they don' t make enough to bother

The standard deduction is usually more than it would be if they itemized.

[rickford66]

7. Exactly

The higher earners will make out if every payment they receive is considered a tip. Pay the roofer one dollar and tip him 5 grand !

[Figarosmom]

8. Yeah thats the scam exactly

But it's for hedge fund dealers and consultants. Thise that really don't work with their hands and really aren't service jobs.

[sl8]

6. I think the new exemption is an "above the line" deduction, which means you wouldn't need to itemize to claim it.

https://www.nytimes.com/2025/05/21/dining/no-tax-on-tips-bill.html

What will the new bill do?

It will make tip income exempt from federal income taxes. That amount will be subtracted from reported income as an “above the line” deduction on a tax return. That will reduce how much income tax is owed. The tips will still have to be tracked and reported.

[unblock]

2. I'm sure everyone on du is an honest taxpayer, but....

I know a lottttttt of tipped workers who don't report or severely under-report their cash tips.

So in practice, this wouldn't really save them much, if anything.

[sl8]

4. I'm not so sure about that.

Last edited Fri May 23, 2025, 08:41 AM - Edit history (4)

The new law does specify "cash tips", but I didn't see where it changed the definition of what constitutes a "cash tip" in the IRS code. The legal definition doesn't necessarily match the common English meaning and currently the IRS considers "cash tips" to include tips made on credit and debit cards.

https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting

All cash and non-cash tips an received by an employee are income and are subject to Federal income taxes. All cash tips received by an employee in any calendar month are subject to Social Security and Medicare taxes and must be reported to the employer. If the total tips received by the employee during a single calendar month by a single employer are less than $20, then these tips are not required to be reported and taxes are not required to be withheld. Cash tips include tips received from customers, charged tips (for example, credit and debit card charges) distributed to the employee by the employee's employer and tips received from other employees under any tip-sharing arrangement. Tips also include tips received by both directly and indirectly tipped employees.

I don't know who the woman in the OP video is - does she have some particular expertise in tax law, or is she just assuming what "cash tips" means to the IRS?


On edit:

The NYT says the exemption does apply to credit card, debit card, etc., tips:

https://www.nytimes.com/2025/05/21/dining/no-tax-on-tips-bill.html

What counts as a tip?
In the tax code and in this legislation, the term “cash tip” applies to tips given in bills and coins, on a credit or debit card, or via the business’s electronic payment system. It has not yet been determined whether tips that go directly to a server via a service like Venmo or PayPal would qualify as cash. Service charges, which are legal in some places, are added by the business and do not count as tips.

[...]

Does tipping in cash make a difference?
Not for tax purposes. It does reduce a restaurant’s credit card processing fees, which are charged as a percentage of the total bill (about 2 percent to 3.5 percent of each transaction, and sometimes a 30-cent “swipe” fee). But it doesn’t leave a paper trail for the employee or employer to track, which can increase the risk of tax fraud. Some cash tips go unreported, which is considered tax evasion, but the scale of the problem has never been determined. As fewer customers pay with cash, it is probably diminishing.

Kiplinger disagrees:

https://www.kiplinger.com/taxes/no-tax-on-tips-bill-approved#:~:text=Here%27s%20a%20quick%20summary.,up%20to%20$160%2C000%20a%20year.

Despite the excitement over this bill, there are some things the Senate bill doesn’t cover.

A key note is that this bill only applies to cash tips. Though, for IRS tax purposes, literal cash tips, credit card tips, and tips made through electronic payment methods like apps are traditionally treated the same. Non-cash tips are still considered taxable by the IRS but are not covered under this bill.

[Snoopy 7]

5. wow

I guess it's time to revisit history:
In a June 2024 ruling, the Supreme Court clarified that a federal bribery law, 18 U.S.C. § 666, does not criminalize "gratuities" given to state and local officials after an official action, according to the American Bar Association. The court's decision, in Snyder v. United States, focused on distinguishing between bribes, which are payments made before an official act to influence it, and gratuities, which are payments made after the action as a form of thanks or reward. The ruling effectively narrowed the scope of Section 666, which was often used by federal prosecutors to pursue corruption cases against state and local officials.
This means if the bribe comes after the awarded act then it isn't a bribe but a tip therefore, these people are looking to get their "tips" tax free. Who would have thunk it?