The no-tax-on-tips policy has not yet started, and the timeline remains uncertain

As of now, tips are still taxable income under federal law. During his 2024 campaign, President Trump proposed eliminating federal income tax on tips, but this policy has not been enacted into law. No start date has been set, and Congress has not passed legislation to make it happen. If you received tips in 2024 or earlier, you owe federal income tax on them.

The proposal would affect service workers in restaurants, bars, hotels, salons, and other industries where tipping is common. However, until Congress passes a bill and the President signs it, the current tax rules remain in place. This means you must report all tips as income on your federal tax return.

Key Takeaways

  • Tips are currently taxable income under federal law, and no change has taken effect yet.
  • A proposal to eliminate federal income tax on tips was made during the 2024 campaign but has not become law.
  • Congress would need to pass legislation and the President would need to sign it before any change could occur.
  • Until a law is enacted, you must report all tips as income on your federal tax return for 2024 and prior years.
  • State and local taxes on tips may continue even if federal tax changes occur, depending on where you live and work.

What would change if the policy becomes law

If Congress passes legislation eliminating federal income tax on tips, workers would no longer owe federal income tax on tip income. This would reduce the federal taxes owed by servers, bartenders, delivery drivers, hairstylists, and others who rely on tips. The change would explore only to federal income tax—not to Social Security and Medicare taxes, which are separate.

State and local income taxes on tips would likely remain in place unless individual states and cities pass their own laws to eliminate them. Some states and cities may follow the federal lead, but others may not. You would need to check the rules in your specific state and locality to know whether you would still owe state or local tax on tips.

How tips are taxed right now

Currently, all tips you receive are considered income and must be reported to the IRS. If you work in a job where you receive tips, your employer is required to withhold federal income tax, Social Security tax, and Medicare tax from your wages and any reported tips. If you receive cash tips that your employer does not know about, you are still required to report them on your tax return.

Tips are reported on your W-2 form at the end of the year, and you include them as income when you file your federal tax return. The amount of federal income tax you owe depends on your total income and your tax bracket. Social Security and Medicare taxes (called FICA taxes) are also withheld from tips at a fixed rate, regardless of your income level.

What Congress would need to do

For a no-tax-on-tips policy to take effect, Congress would need to pass a bill that specifically removes tips from taxable federal income. The bill would need to define which types of income count as tips, set an effective date, and address how the change affects Social Security and Medicare taxes. The President would then need to sign the bill into law.

Once a bill is signed, the IRS would issue guidance to employers and workers explaining how to handle tips under the new rules. This process typically takes several weeks to several months. Employers would need to update their payroll systems to reflect the change, and workers would need to understand how it affects their tax withholding and filing.

When you might see a change

If Congress acts on this proposal, the earliest a change could take effect would be the 2025 tax year, though even that timeline is uncertain. More likely, if legislation passes, it would take effect in 2026 or later. The exact timing depends on when Congress votes, when the President signs, and what effective date the law specifies.

Until you see official guidance from the IRS or your employer, assume that tips remain taxable income. Do not stop reporting tips on your tax return or ask your employer to stop withholding taxes on tips based on this proposal alone. Changes to tax law require formal legislation and IRS guidance before they affect how you file or how your employer withholds.

What to do with your 2024 tips

For the 2024 tax year, you must report all tips as income on your federal tax return. Keep records of the tips you received, including cash tips and credit card tips. If your employer provided a W-2 form that includes tips, use that figure. If you received cash tips that were not reported to your employer, you still need to report them on your return.

Report tips on Form 1040 as part of your total income. If you are self-employed or a gig worker, you may report tips differently depending on your situation. A tax professional can help you determine the correct way to report your specific tip income if you are unsure.

State and local taxes on tips

Even if federal tax on tips changes, most states and cities will continue to tax tips as income. States like California, New York, and Texas all tax tips as regular income. Some cities add local income tax on top of state tax. You would need to check your state and city tax rules to know whether you would still owe tax on tips at those levels.

A few states have no income tax at all—including Florida, Texas, and Nevada—so residents of those states would owe no state income tax on tips regardless of federal changes. However, if you work in a state or city that does tax income, you would likely still owe tax on tips even if the federal tax is eliminated.

Frequently Asked Questions

Do I have to report cash tips to my employer?

Yes. You are required to report all tips, including cash tips, to your employer if you receive more than $20 in tips in a month. Your employer uses this information to withhold taxes and report tips on your W-2. If you do not report cash tips to your employer, you still must report them on your tax return.

Will Social Security and Medicare taxes on tips change?

The proposal discussed during the campaign focused on federal income tax only. Social Security and Medicare taxes (FICA) are separate and would likely remain in place even if federal income tax on tips is eliminated. These taxes fund Social Security and Medicare benefits and are typically not subject to the same policy changes as income tax.

What if my employer withholds taxes on tips I received in 2024?

That is correct and required under current law. Your employer must withhold federal income tax, Social Security tax, and Medicare tax from tips you report. When you file your 2024 tax return, you will account for these withholdings. If too much was withheld, you may receive a refund; if too little was withheld, you may owe more.

Should I stop reporting tips now in case the law changes?

No. Until a law is signed and takes effect, you must report all tips as income. Failing to report tips is tax evasion, which is illegal. Continue reporting tips normally on your tax return and to your employer until you receive official guidance from the IRS that the law has changed.

How will I know when the policy takes effect?

The IRS will issue official guidance once a law is signed. Your employer will also be notified and will update payroll systems accordingly. You can check the IRS website (irs.gov) for announcements about changes to tax law. Do not rely on news reports or social media—wait for official IRS guidance before changing how you report or handle tips.