Michael Chittenden’s commentary was featured in an article appearing in The National Law Journal about the “No Tax on Tips” provision of the 2025 One Big Beautiful Bill Act. Under the law, qualified tips, defined as “cash tips,” will be exempt from federal income taxes in tax years from 2025-2028. The final rule covers a range of occupations across eight categories, including food and beverage service, entertainment and events, and hospitality.
According to Michael, the final regulation also included provisions to prevent abuse. An employer cannot treat wages paid to an employee as tips, for example, and the IRS will be monitoring for substantial changes in billing behavior that could indicate employers are wrongly classifying wages.
“The IRS is strained in its resources and its ability to effectively police that may be somewhat limited, but I suspect it will try,” Michael added.
Michael also said there was hope that the new deduction would spur employees to report more tips, but he was skeptical that would be the case. If employees report tipped wages, they will reduce their income tax but still be subject to payroll taxes for Medicare and Social Security.
“They’ll still be subject to more tax than if you don’t report them at all,” Michael believed. “I’m not sure that [more reporting] is actually going to happen.”
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