We’ve all heard the Trump administration’s promise on no tax on tips. But if you are earning tips right now, you probably want to know the first steps to doing so. Below, we will show you how to pay no tax on up tips in an amount up to $25,000.

How No Tax on Tips came to be

This week The Internal Revenue Service and the Department of the Treasury released guidance on the provision regarding tipped workers. Recent regulations outlined jobs that regularly receive tips. They also have a definition for “qualified tips” you may be able to claim as a deduction. In fact, this goes beyond waiters, food delivery, and other regularly tipped workers. There are nearly 70 separate occupations that qualify as tipped workers. These include eight categories:

  1. Food and beverage service.
  2. Guest and hospitality service.
  3. Events and entertainment.
  4. Home services.
  5. Personal services.
  6. Appearance and wellness services.
  7. Delivery and transportation services.
  8. Recreation and instruction services.

Did you know? Approximately 3 million workers rely on tips as a substantial part of their wages in the United States? Source: Lift HCM

What are Qualified Tips?

You must fall into one of the subsets listed above to receive qualified tips. These tips would then fall under tips paid in cash, check, credit or debit card, and even gift cards. You may also be tipped via mobile payments such as Venmo, Zelle, Cash App, or other equivalent. These tips may come directly from a client or customer or via a tip pool. Qualified tips are also defined by the Department of Treasury as “paid voluntarily by the customer and not be subject to negotiation.”

What Form Do I Use to Claim or Deduct Tips?

Although not official, the IRS has released a draft of Form 1A, which may be the final form used for “additional deductions” meant to be attached to your 1040, 1040-SR, or 1040-NR. Part II of this form is exclusively for no tax on tips. There are also sections for no taxes on overtime, car loan interest, and enhanced deductions for seniors. This form, or something similar to it, will need to be filled out correctly in order to successfully claim no tax on tips.

More on How to Pay No Tax on Tips in Houston

Do you work in hospitality, entertainment, and other services that pay in tips? Make sure you file your first tax return with no tax on tips right by using a professional. We are experienced bookkeepers with many clients in that area and can help you file correctly. Just contact us to set up an appointment.