No Tax on Tips explained

Written By NPJ Staff

The One Big Beautiful Bill (OBBB) includes a "No Tax on Tips" provision that promises relief for Nevada’s tipped workers, who make up over 5% of the state’s workforce—the highest per capita in the U.S. This measure, allowing workers to deduct up to $25,000 in tip income from federal income taxes through 2028, could reshape the financial landscape for servers, bartenders, and casino dealers.

How It Works

The provision lets tipped workers in qualifying roles—defined by the Treasury within 90 days—deduct up to $25,000 in cash, credit card, or shared tips from federal income taxes, provided they’re reported to employers. The deduction phases out for individuals earning over $150,000 ($300,000 for joint filers), and tips remain subject to payroll taxes (7.65% for Social Security and Medicare). Nevada, with no state income tax, amplifies the policy’s appeal, potentially saving workers an average of $1,675 annually, per the White House’s Council of Economic Advisers.

Fact: Nevada’s tipped workforce, primarily in hospitality, generates over $1 billion in annual tip income, making it a critical economic driver in Las Vegas, where 1 in 4 jobs is tourism-related.

Impact on Nevada’s Tipped Workers

For many, the tax break means more take-home pay. A Las Vegas server earning $40,000, with $20,000 in tips, could save $2,000 in taxes, boosting their disposable income. Yet, about 30% of tipped workers earn too little to owe federal income taxes, limiting the benefit for low-wage earners, says the Yale Budget Lab. Further, the deduction’s 2028 expiration adds uncertainty, prompting the Culinary Union, representing 60,000 workers, to push for permanence and a doubled deduction for couples.

Fact: Las Vegas casino dealers, unique to Nevada, earn up to 70% of their income from tips, making them prime beneficiaries of the tax break.

Likely Scenarios

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.

The "No Tax on Tips" provision offers Nevada’s 150,000 tipped workers a financial lifeline, potentially injecting $250 million into the state’s economy annually. Yet, its temporary nature and reporting hurdles temper excitement.

Sources:

NPJ Staff
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