Tipped workers expect tax boon this year, but not a long-term fix : NPR

During the State of the Union address, President Trump promised the largest tax refunds in U.S. history this year after Congress passed massive tax cuts last summer.

“With the big beautiful bill, we didn’t give you any tax on the tips,” Trump said before introducing Pennsylvania mother and waitress Megan Heimhauser. “Megan is here this evening, and she’s pleased to tell you that she’s that much richer because with no tax on tips, no tax on overtime and our expanded child tax credit, Megan and her husband will take home over $5,000 extra.”

Trump’s promise of higher tax returns for working-class Americans comes as US polls increasingly show people disapprove of Trump’s handling of the economy, according to a recent NPR/PBS News/Marist poll. Trump often points to his changes to taxes on tips as an example of how he is trying to reduce rising costs — and address voters’ concerns.

Garrett Watson at the Tax Foundation said refunds for the middle class will be higher on average this year. Watson pointed to these new tax policies that Trump had campaigned on just a year earlier: tax breaks on excess income, overtime pay and Social Security benefits.

“Often we look at federal taxes, it’s more slow moving,” Watson said. “This is in contrast to many of these new ideas, which were quite new in their infancy, and were created in the context of the 2024 campaign.”

Trump first coined the phrase “no tax on tips” in Las Vegas. Then-candidate Vice President Kamala Harris immediately endorsed the campaign promise. And during Trump’s first year in office, the GOP-controlled Congress passed a tax deduction of up to $25,000 for tip wages in the One Big Beautiful Bill Act.

This new tax cut leaves experienced workers — who make up 12% of the U.S. workforce according to a TurboTax survey — wondering how to get this new cut, whether they qualify, and whether it will make a financial difference.

“There’s a lot of confusion or popular misconception around tax changes and new items, as there always is,” Watson said.

Tip employees hope for relief

Ashley Armstrong is a waitress, wife, and mother of three.

She waits tables and greets passengers at the local airport in Kalispell, Mont. – southwest of Glacier National Park.

Tips make up a significant portion of his annual salary, which Armstrong estimates at $85,000. This year, she’s looking forward to tax season.

“If I took $25,000 out of it, it would affect me,” Armstrong said.

For Armstrong, the tip deduction will keep her family from moving into a higher tax bracket — which she can’t afford. And she is not alone.

In Cambridge, Mass., 60-year-old bartender Joe McGuirk is hoping for a bigger tax break than usual.

“It’s probably going to be a boon for me,” McGuirk said. “I have a friend who has already started filing taxes. It looks like he’ll get about $5,800 back, compared to $1,500 he got back last year.”

Still, McGuirk — who has tended bar for 35 years — said he doesn’t think this year’s tax break will make any meaningful change to his financial situation.

“With the price of everything going up, it’s obviously going to help me,” he said. “That said, other trends in our society make it, you know, it’s really like using a spoon to deal with a flood.”

Housing in Cambridge is his biggest financial pressure, but it was not always so.

“There’s a lot of work for me here,” he said. “Good job that allowed me for decades to keep a roof over my head and put two kids through college. Now, my income doesn’t keep up with the cost of housing.”

In Kalispell, the biggest cost for Armstrong is health care.

“It’s huge,” she said. “My daughter had asthma and had to stay in the children’s hospital ward for three days. And we don’t qualify for scholarships because we make a lot, but we don’t make enough to really pay those kinds of bills.”

Armstrong is the only person in his family who has health insurance through his job. Her children and husband pay the medical costs from their own pockets.

“We’re middle class and we’re not rich enough to pay monthly insurance,” Armstrong said.

How does it work and who is eligible

For those who apply for benefits, it’s up to the employee — not the employer — to separate tips from other pay on their tax forms this year, according to Lisa Green-Lewis, CPA and tax expert at TurboTax. The Treasury Department does not require employers to do this because of changes in the tax law for taxpayers and businesses.

While some employers will separate tips from other wages, Green-Lewis said it’s up to tipped workers and their accountants to double-check their tipped earnings and then report the deduction.

He said the tax platform added a section for tipped employees this year.

Green-Lewis recommends adding up all tips earned on paystubs to ensure no tips are left out. Although it’s extra work, Green-Lewis said TurboTax data shows it will be worth it.

“We’re seeing people get refunds with outstanding balances of $1,000 or less compared to last year,” Green-Lewis said. “So I’ll definitely be taking advantage of those.”

As for eligibility, the Treasury Department released guidance on jobs that qualify for the $25,000 tip deduction: bartenders, waiters, beauticians, ride share drivers, baristas. Etcetera. Employees who earn more than $150,000 annually cannot deduct tips from their taxable income.

Treasury Department and White House officials did not respond to requests for interviews on the new tip cut.

Will it last?

In Las Vegas, Starbucks barista Yolanda Garcia said she expects to get a financial bump this tax season — but nothing huge.

“I think it will help a little bit, but not much because you get something once a year,” Garcia said.

Garcia and her husband support their two daughters. For his family, rising grocery prices are the main concern.

“I went to get groceries like every week,” Garcia said. “Now, I go every two weeks, and now I buy things I need, not things I want.”

Garcia and McGuirk, both in Cambridge, said this new tax benefit could make a real difference if it were permanent. As things stand, the tax deduction on tips expires in 2028.

“Even though it’s a blessing for me, I can’t count on it for more than the next three years,” McGuirk said.