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North America
Service workers in the U.S. are eagerly awaiting the elimination of taxes on their tips, but the fine print in Republicans' new law could limit savings for some workers. Only the first $25,000 in tips is free from income taxes, and tipped workers will still face the 7.65% combined payroll taxes that fund Social Security and Medicare. Workers won't be able to benefit if federal officials say their type of service job doesn't qualify. The "no tax on tips" measure, which started as a campaign promise by President Trump during a 2024 stop in Nevada, is now a key element of the tax-and-spending megabill signed into law Friday. The cut could save some service workers thousands of dollars a year in federal taxes. More than a third of tipped workers don't make enough to pay federal income taxes, including many low-income workers with children and students who work in part-time tipped jobs. The relief will take effect this tax year, including for tips already received.
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