‘No Tax on Tips’ is in effect. A Utah server says this change would help even more.

The “One Big Beautiful Bill” that became law on July 4 — which President Donald Trump has called “a massive tax cut for the middle class,” but opponents say is designed mostly to benefit the wealthy — featured one item aimed at helping working-class people: A promise to remove taxes on tips.

Looking at the fine print, though, that promise quickly starts to have a lot of qualifiers and limits on it.

And with some information yet to be made clear — for example, the IRS won’t be publishing a list of the occupations that qualify until Oct. 2 — some big questions remain.

How will this new law actually affect people in the service industry? Will it really help bartenders, servers, baristas and other workers who provide services for a living?

Andrew Lautz, director of tax policy for the Bipartisan Policy Center, said the provision will be a help, just as long as the tipped worker makes more than the standard deduction threshold ($15,000 for single taxpayers and $30,000 for married couples filing jointly).

If they make less than the standard deduction, they wouldn’t be paying federal income taxes anyway, so an additional deduction on tips wouldn’t help them, Lautz said in a recent webinar.

“Getting to carve out up to $25,000 in tipped income from any federal income taxes is a meaningful benefit,” he said. “It’ll be hundreds of dollars to thousands of dollars, depending on who the taxpayer is and what tax bracket they’re in.”

The Salt Lake Tribune asked a server and a bartender working in Salt Lake City what they think about the “No Tax on Tips” provision, and how they anticipate it will affect their lives.

“People always say, ‘Oh, you don’t have to pay on any of your tips now.’ And I’m like, ‘That’s the way they framed it, but that’s not how it is,’” said Derek Emeroy, who works at Violet restaurant in Salt Lake City.

What does ‘No Tax on Tips’ mean in theory?

Despite how it may sound, “No Tax on Tips” doesn’t mean that tipped workers can just pocket their unreported tips at the end of the day and call it good.

Instead, under the One Big Beautiful Bill Act, any employee who “customarily and regularly received tips” as of December 31, 2024, can deduct up to $25,000 in tip income (cash and charged tips both count) from the amount of their income that’s subject to tax, according to the IRS’ website.

A few caveats (all taken from IRS.gov):

• The deduction is effective for 2025 through 2028 only.

• The tips that qualify are those received voluntarily from customers or through tip-sharing.

• If you’re a taxpayer whose modified adjusted gross income is over $150,000 ($300,000 for joint filers), the $25,000 tip deduction will phase out.

• The $25,000 deduction is available to taxpayers whether they itemize their deductions or not.

What does ‘No Tax on Tips’ mean in practice?

Jason Gardner, deputy executive director for the Utah State Tax Commission, said it’s not accurate to say that tips are no longer being taxed.

“If they were actually truly making tips not subject to tax, then everyone would have tips not be subject to tax,” he said. ”But that’s not what they did. They said that tips are subject to tax, we’re just allowing some people to have a deduction to not be taxed on them."

To think of it visually, Gardner compares the $25,000 deduction, and any other tax deduction, to a pepperoni pizza.

The whole pie represents income that’s subject to tax, he said, and the slices of pepperoni represent deductions. According to federal law, the government is “allowing this deduction to pull out a piece, or create an island, within the otherwise taxable income of where we’re not going to tax the income,’” he said.

Gardner clarified that taxpayers who take the standard deduction can claim the $25,000 tip deduction on top of the standard deduction.

He also said that for every $1,000 that single tipped employees make over the $150,000 threshold, the tip deduction they can take is reduced by $100.

Tips will still be subject to payroll withholding for Social Security and Medicare, Gardner said.

One thing to remember is that “a person can only deduct tip income that was reported to the employer and included on the employee’s W-2,” Gardner said. So, a tipped employee can’t claim cash tips unless they are reported to their employer and on their W-2.

Gardner said it’s “unclear” how the new $25,000 deduction will affect tipped workers’ Utah tax returns. He said the tax commission believes that the “No Tax on Tips” provision could result in a reduction of Utah taxable income, which means tipped workers would get the same benefit on their Utah tax return that they got on their federal return.

The Utah State Tax Commission will have a lot more details come December, when the IRS releases all the forms for the 2025 tax filing year, and the commission can see how the income flows to the Utah tax return, Gardner said.

For more information about the “No Tax on Tips” provision, visit IRS.gov.

What does a bartender think?

Sam Miller has “made a career” out of bartending, he said. “I’ve been bartending and managing bars for 15 years, with no other side hustles or anything like that,” he said.

He’s been working at Water Witch — a James Beard-nominated cocktail bar in Salt Lake City’s Central Ninth neighborhood — since 2021, and he does a lot of bartending in other cities, where he’ll do pop-ups or teach bartending.

Miller also does occasional pop-ups under the moniker Island Time with fellow bartender Mikey Edwards. Miller and Edwards are partners on the upcoming Salt Lake City tiki bar concept Remora, along with Sean Neves and Scott Gardner.

For the past eight years of his career, Miller has specialized in tropical cocktails, but he has “worked in pretty much every style of bar there is,” he said.

Miller estimates that he makes around $50,000 in tips annually; under the new law, he’d only have to pay federal income taxes on half of that tipped income, as long as he doesn’t net more than $150,000.

He believes the new law “definitely will give us tax benefits,” more so if you’re a full-time bartender who makes most of their money from tips, but not so much money that you hit the $150,000 ceiling.

If you’re a part-time bartender who may not make enough money to qualify for the standard deduction, “I don’t think it will help as much,” he said.

Miller also said that saving money on taxes as a tipped worker is “bittersweet” if you suddenly lose your health insurance or SNAP benefits.

“When I was a young bartender, I relied heavily on all of those benefits,” he said. “Low-income housing, food stamps, all that was definitely a part of my younger years.”

What does a server think?

Derek Emeroy started working at Violet, a neighborhood restaurant just south of Sugar House, a little over a year and a half ago, and became the lead server “pretty much right away,” he said.

Although he spends one night a week calling out bingo numbers in bars as a side gig, Emeroy said his “base income is all from Violet.”

He is paid $2.13 an hour, which is what employers of tipped employees are required to pay in direct wages “if that amount combined with the tips received at least equals the federal minimum wage” of $7.25, according to the U.S. Department of Labor.

Emeroy believes the “No Tax on Tips” provision is going to help him, but “it’s not going to be a huge impact,” he said.

According to his own calculations, Emeroy said the provision would probably save him only a few hundred dollars. He reached that conclusion by looking at his taxes last year, for which he owed about $800. Since he makes about $45,000 a year in tips, and the money he earns hourly is typically eaten up by taxes, he said, he would be able to deduct about half his income through the new provision.

If he winds up owing about $400 next tax season instead of $800, that’s only about $400 he’s saved, he said.

But he shares that calculation with the caveat that he won’t know for sure how much he owes until he files his taxes in 2026.

Emeroy said that increasing the federal minimum wage for tipped workers would be “more beneficial” than eliminating taxes on tips. “Even if it’s not up to the $7.25 minimum wage, if they just made it $4, the taxes on tips wouldn’t even affect me at all,” he said, because his tax obligation would be covered by the hourly wage.

When asked how he feels about restaurants and coffee shops that have eliminated tipping altogether and raised the wage of their workers instead, Emeroy said it was “awesome,” but he also wonders how that affects servers’ motivation.

“There’s times when the tip is the only thing that makes me go a little bit extra,” he said. “I always give good service, and I’m a great worker, but sometimes the tip is the thing that makes me work a little harder.”