Former President Donald Trump signed a major tax and spending bill that includes a widely discussed provision aimed at making tips tax-free for many American workers. The legislation was promoted as a way to reduce the financial burden on service industry employees who depend heavily on tips as part of their income. Supporters say the measure is designed to help workers keep more of what they earn and provide relief during times of rising living costs.
Under the new provision, employees in tip-based occupations can deduct a significant portion of their tip income from their federal taxable income, up to a set annual limit. While often described as eliminating taxes on tips, the change does not remove all taxes entirely, as payroll and other mandatory contributions still apply. Instead, it lowers the amount of income subject to federal income tax.
Advocates argue the move benefits millions of workers in restaurants, hospitality, and similar industries. Critics, however, point out that eligibility rules and income limits may reduce its overall impact.
