What Happened: The "New Tax on Tips" Law
As part of the “Big Beautiful Bill” signed July 4, 2025, tipped and certain non-exempt workers may deduct up to $25,000 in reported tip income from federal taxable income between tax years 2025 and 2028. Eligibility requires individuals to earn under $150,000 (or $300,000 for joint filers). Only cash tips reported on W-2s qualify Fisher Phillips.
The Treasury Department released a preliminary list of 68 eligible occupations across eight categories—ranging from bartenders, DJs, and massage therapists to HVAC techs, landscapers, and social media creators.
Why It Matters for You
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Recruiting & Retention Edge: Employers in impacted industries—from hospitality to personal services—can use this tax incentive to attract and retain talent.
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Payroll Complexity Grows: HR and payroll teams must adjust systems to track and report eligible tip income accurately on W-2s.
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Legal & Compliance Risks: Mishandling eligibility criteria or failing to track tip income properly can lead to audit exposure, misclassification, or wage disputes.
How fpSOLUTIONS Can Help
All Access Products Pass Without Handbook
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Train your teams with up-to-date toolkits and living policy templates to ensure everyone understands disclosure and payroll requirements.
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Customize onboarding materials and orientation checklists to incorporate the “No Tax on Tips” changes.
Compliance Products
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Deploy tracking templates and audit-ready documentation for tips, shared tips, and cash-only eligibility validation.
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Use job-category matrices aligned with the Treasury’s list to verify which roles in your organization are affected and update recruitment materials accordingly.
State Law Tracker
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Monitor how this federal change interacts with state and local taxes—especially important in states like Colorado, where overtime may still be taxable despite federal exemptions.
This temporary tax deduction reshapes the hiring landscape for tipped roles—but it also adds layers of compliance complexity. With fpSOLUTIONS on your side, you'll be empowered to act swiftly, stay compliant, and win the talent race.