Tips have always been taxable income. Workers in restaurants, salons, and other service industries have had to report every dollar, even though tip income is often unpredictable. Starting in 2025, however, there’s a new benefit: a deduction for tip income.
What’s New
For the first time, taxpayers can deduct a portion of their reported tip income, reducing taxable income and lowering their overall tax bill.
Why It Matters
This change recognizes that tips function differently from regular wages. For many military spouses working in food service, hospitality, or personal care jobs, tips are a major part of their income. This deduction offers real relief to families relying on variable, service-based earnings.
How It Works
- The deduction applies to tips reported to your employer.
- It reduces your taxable income, just like other “above-the-line” deductions.
- The deduction amount is capped, but for most workers, it can save hundreds of dollars each year.
Military Family Impact
Military families often have one spouse serving and another working in civilian jobs—frequently in industries where tips are common. For those families, the tip deduction means a fairer tax system and more money kept at home.
PIM Tax Services will ensure your tip income is reported correctly and that you claim every dollar of deduction available.