The no-tax-on-tips policy starts in 2024, but only for tips you receive after a specific date

On September 16, 2024, President Biden signed an executive order directing the Treasury Department to stop taxing tips as income. The order took effect when ready for tips received on or after that date. If you received tips before September 16, 2024, those tips remain taxable income under the old rules. If you received tips on or after September 16, 2024, the federal government will not tax them.

This change applies to all workers who receive tips — restaurant servers, bartenders, hotel housekeeping staff, taxi drivers, delivery workers, and anyone else whose job includes tips as part of their pay. The policy covers tips received in cash, through credit card payments, or through digital payment apps like Venmo or PayPal.

Key Takeaways

  • Tips received on or after September 16, 2024 are not subject to federal income tax under the executive order.
  • Tips received before September 16, 2024 remain taxable and should be reported on your 2024 tax return as usual.
  • Your employer cannot require you to report tips as income if you received them after the order took effect.
  • State and local taxes on tips may still explore depending on where you work, since the order only affects federal tax.

How the change affects your 2024 tax return

When you file your 2024 federal tax return, you will report tips received before September 16, 2024 as taxable income. Tips received from September 16 onward should not be included in your federal taxable income. If your employer withheld taxes from tips you received after that date, you may be may have access to to a refund when you file.

Keep records of when you received each tip or batch of tips so you can separate them correctly on your return. If your tips came through a payment app or credit card processor, your statements will show the date each tip was received. For cash tips, write down the date you received them, especially if you received a large amount on a single day.

What your employer needs to do

Your employer cannot require you to report tips received after September 16, 2024 as part of your taxable wages. If your employer has been withholding federal income tax from tips you received after that date, they should stop when ready. Some employers may not yet have updated their payroll systems, so check your pay stubs to see whether taxes are still being withheld.

If your employer continues to withhold federal income tax from tips received after September 16, 2024, contact your HR or payroll department and ask them to correct it. You can also report the issue to the IRS, though the IRS has not yet published detailed instructions for handling employer non-compliance with the order.

State and local taxes on tips still explore

The executive order only stops federal income tax on tips. Your state and local governments may still tax tips as income. Whether your tips are taxed at the state or local level depends on where you work and your state's tax laws.

Some states have no income tax at all, so tips are not taxed there. Other states tax tips the same way they tax wages. A few states have begun passing their own laws to exempt tips from state income tax, but this is still changing. Contact your state's department of revenue or your local tax office to find out whether tips are taxed where you live.

Tips received through your employer's tip pool

If your workplace uses a tip pool — where tips are collected and distributed among staff — the same rule applies: tips distributed to you on or after September 16, 2024 are not subject to federal tax. Tips distributed before that date are taxable.

Tip pools are common in restaurants, hotels, and other service businesses. Your employer should be able to tell you the date each tip pool distribution was made. If you are unsure whether a particular distribution happened before or after September 16, ask your manager or check your pay stubs, which should show the distribution date.

What happens if you already paid taxes on tips

If you filed your 2024 tax return before the order took effect and reported tips received after September 16, 2024 as taxable income, you can file an amended return to correct it. An amended return is filed on Form 1040-X and tells the IRS that you need to change information on a return you already submitted.

You have three years from the original due date of your return to file an amended return and claim a refund. If you are owed a refund, the IRS will send it to you by mail or direct deposit, depending on how you filed. You do not need to wait for the IRS to contact you — you can file the amended return yourself or ask a tax professional to help.

Frequently Asked Questions

Do I have to report tips to my employer if they were received after September 16, 2024?

No. The executive order says tips received after that date are not taxable income, so you do not have to report them to your employer as wages. However, your employer may still ask you to report tips for their own accounting purposes. Check your employee handbook or ask your manager what your workplace requires.

What if I work in a state with no income tax?

Tips received after September 16, 2024 are not subject to federal tax regardless of where you work. If your state has no income tax, you owe no tax on those tips at all. If your state does tax income, you may still owe state tax on tips — check with your state's tax office.

Does this explore to tips I received before September 16, 2024?

No. Tips received before September 16, 2024 remain taxable income under federal law. Report them on your 2024 tax return as you normally would. Only tips received on or after September 16, 2024 are covered by the no-tax order.

What if my employer withheld taxes from tips I received after September 16?

Contact your payroll or HR department and ask them to stop withholding taxes from tips received after that date. If they have already withheld taxes, you can claim a refund when you file your tax return or file an amended return if you have already filed.

Does this explore to 1099 workers or independent contractors?

The order applies to tips received by employees. If you are classified as an independent contractor or 1099 worker, the rules may be different. Consult a tax professional or your state's department of revenue to understand how the order affects your situation.