No Tax on Tips explained

The One Big Beautiful Tax Cut Bill includes a “No Tax on Tips” provision that applies to Nevada’s tipped workers, who represent over 5% of the state’s workforce, the highest percentage per capita in the nation. Under this measure, eligible workers may exclude up to $25,000 in tip income from federal income taxes each year through 2028. The provision affects servers, bartenders, casino dealers, and other tipped employees.

How It Works

The provision allows tipped workers in qualifying occupations to exclude reported tip income from federal income taxes. This exclusion applies only to tips properly reported to employers. The benefit phases out for individuals with adjusted gross income above $150,000 ($300,000 for married couples filing jointly). Tips remain subject to payroll taxes, including the 7.65% combined Social Security and Medicare tax. In Nevada, which has no state income tax, the federal exclusion delivers its full value directly to workers. According to the White House Council of Economic Advisers, the policy will save affected workers an average of $1,675 per year.

Impact on Nevada’s Tipped Workers

For many, the tax break means more take-home pay. For example, a Las Vegas server earning $40,000 in wages and $20,000 in tips could save roughly $2,000 in federal income taxes, adding that amount to disposable income.

Nevada’s tipped employees generate more than $1 billion in tip income each year, a vital part of the state economy. In Las Vegas, where one in four jobs depends on tourism, casino dealers stand out: many earning up to 70% of their total income from tips and therefore benefit most from the new tax exclusion.

A Likely Scenario

Javier, a 28-year-old bartender at a Las Vegas casino, earns $60,000 in 2025, including $35,000 in tips and $25,000 in base wages. Under the "No Tax on Tips" provision of the One Big Beautiful Bill, he deducts $25,000 of his tip income from federal taxes, slashing his taxable income to $35,000. Previously, Javier paid $6,500 in federal taxes; now, his tax bill drops to $2,300, saving him $4,200 annually. Nevada’s lack of state income tax maximizes this windfall.

Lila, a 34-year-old casino dealer in Reno, earns $55,000 in 2025, with $30,000 from tips and $25,000 in base wages. Under the "No Tax on Tips" provision, she deducts $25,000 of her tip income from federal taxes, reducing her taxable income from $55,000 to $30,000. In 2024, Lila paid $5,800 in federal taxes; now, her tax bill drops to $1,900, saving her $3,900 annually.

IRS Guidance

The Treasury Department, led by Secretary Scott Bessent (R), recently published Guidance for Individual Taxpayers who received Qualified Tips or Qualified Overtime Compensation to explain how tipped workers can claim the new “No Tax on Tips” deduction. To qualify, workers must report all cash and non-cash tips to their employers (typically through Form 4070), and those tips must appear on the employee’s Form W-2. The deduction is taken above the line, meaning workers can claim it even if they take the standard deduction, and it reduces adjusted gross income. The notice includes detailed examples and worksheets.

The “No Tax on Tips” deduction takes effect for all tip income earned on or after January 1, 2025, and expires after December 31, 2028.