Employee Tax Deduction Updates on the Big Beautiful Bill
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APPLIES TO All Employers |
EFFECTIVE July 4, 2025 |
QUESTIONS? Contact HR On-Call |
Quick Look
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Discussion
The “Big Beautiful Bill” was signed by the President on July 4th. There were significant changes to individual tax deductions for employee tips and overtime pay. The federal government has until October 2nd to publish updated forms and guidance on how the tax deductions will operate. While employers are waiting on broader guidance, the Internal Revenue Service (IRS) has released some information regarding the W-2 form and deduction for tips.
No Form W-2 Changes
The IRS announced in August that there will be no changes to certain forms or withholding tables for tax year 2025 related to the new law.
- Form W-2, existing Forms 1099, and Form 941 and other payroll return forms will remain unchanged for TY 2025.
- Federal income tax withholding tables will not be updated for these provisions for tax year 2025.
- Employers and payroll providers should continue using current procedures for reporting and withholding.
These decisions from the IRS are intended to avoid disruptions during the tax filing season and to give the IRS, business, and tax professionals enough time to implement the changes effectively. The IRS is working on new guidance and updated forms for tax year 2026. These will include changes to how tips and overtime pay are reported.
Tipped Jobs Eligible for Tax Deduction
To recap the recent development, starting with the 2025 tax year, tipped employees are eligible for a tax deduction on tips received up to $25,000 annually. The deduction is subject to incremental reduction if the employee’s income exceeds $150,000 for individual filers/$300,000 for joint filers. Tips received must be reported on employee W-2s in order to take advantage of the tax deduction. If the employee is married, they must file a joint return to take advantage of the tax deduction.
The Treasury Department recently released a draft list of the qualifying tipped occupations for purposes of receiving a tax deduction on individual tax returns.
| Category | Tipped Jobs |
| Beverage & Food Service | Bartenders; wait staff; nonrestaurant food servers; dining room and cafeteria attendants and bartender helpers; chefs and cooks; food preparation workers; fast food and counter workers; dishwashers; host staff at restaurants, lounges, and coffee shops; bakers |
| Entertainment & Events | Gambling dealers; gambling change persons and booth cashiers; gambling cage workers; gambling sports book writers and runners; dancers; musicians and singers; disc jockeys (excluding radio); entertainers and performers; digital content creators; ushers, lobby attendants, and ticket takers; locker room, coatroom, and dressing room attendants |
| Hospitality & Guest Services | Baggage porters and bellhops; concierges; hotel, motel, and resort desk clerks; maids and housekeeping cleaners |
| Home Services | Home maintenance and repair workers; home landscaping and groundskeeping workers; home electricians; home plumbers; home heating and air conditioning mechanics and installers; home appliance installers and repairers; home cleaning service workers; locksmiths; roadside assistance workers |
| Personal Services | Personal care and service workers; private event planners; private event and portrait photographers; private event videographers; event officiants; pet caretakers; tutors; nannies and babysitters |
| Personal Appearance & Wellness | Skincare specialists; message therapists; barbers, hairdressers, hairstylists, and cosmetologists; shampooers; manicurists and pedicurists; eyebrow threading and waxing technicians; makeup artists; exercise trainers and group fitness instructors; tattoo artists and piercers; tailors; show and leather workers and repairers |
| Recreation & Instruction | Golf caddies; self-enrichment teachers; recreational and tour pilots; tour guides and escorts; travel guides; sports and recreation instructors |
| Transportation & Delivery | Parking and valet attendants; taxi and rideshare drivers and chauffeurs; shuttle drivers; goods delivery people; personal vehicle and equipment cleaners; private and charter bus drivers; water taxi operators and charter boat workers; rickshaw, pedicab, and carriage drivers; home movers |
Note that this list does not apply to qualifying tipped jobs for tip credit purposes, which is governed by the Fair Labor Standards Act (FLSA). Expect the qualifying tip deduction list to be published in the Federal Register as proposed regulations along with other information by the October 2nd deadline.
Action Items
- Review the proposed list of tipped jobs for purposes of tracking tips.
- Track tips in accordance with the Big Beautiful Bill for purposes of tax reporting on Form W-2 for 2025.
- Update payroll processes to account for the upcoming changes.
- Have appropriate personnel trained on the new requirements.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2025 ManagEase