Could the IRS Start Taxing Tips? What Workers Need to Know in 2025

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With the passage of the Big Beautiful Bill, new attention is being placed on how the IRS handles tipped income—and the conversation is heating up.

While tips have always been technically taxable, the 2025 legislative proposals now open the door to stricter enforcement, potential deductions, and even the development of automatic tip-tracking systems. For millions of tipped workers—servers, delivery drivers, rideshare operators, and hairstylists—this could have major implications.

Here’s what you need to know about IRS tips in 2025, the proposed changes, and how to stay compliant and protected.

How Tip Income Is Currently Taxed

As it stands in 2025, tip income is fully taxable under IRS rules. This includes:

• Cash tips
  
• Card tips
  
• Tips received via third-party platforms (like Uber Eats, DoorDash, etc.)
  

Tipped workers are legally required to:

• Report all tips to their employer (if applicable)
  
• Include tips in their gross income on their tax return
  
• Pay income and FICA (Social Security and Medicare) taxes on those tips
  

Many workers don’t report 100% of their tips—often unknowingly—leading to underreporting penalties, audits, and in some cases, wage garnishment. If you’re already behind, our IRS Wage Garnishment Help may help stop the garnishment and set up a plan.

Proposed Tip Reforms in the Big Beautiful Bill

The Big Beautiful Bill includes several proposals around tipped income, including:

1. Potential Deductions for Tip Earners

To ease the burden on service workers, the bill proposes a standard deduction or tax credit for reported tips—similar to earned income credits. This would incentivize honest reporting.

2. Stricter 1099-K Reporting

Third-party apps and platforms (like Cash App, PayPal, and delivery apps) may now issue 1099-K forms for tip payments once they exceed $600/year. Previously, the threshold was $20,000.

3. Automatic Tip Reporting Systems (Future Proposal)

There’s growing support for automated tip-tracking systems built into POS terminals, rideshare platforms, and delivery apps—removing human error and underreporting altogether. This could become reality by 2026 or later.

 What Tipped Workers Should Do in 2025

Whether you’re waiting tables, doing hair, or delivering food, here’s how to protect yourself:

• Track All Tips Daily – Keep a log (apps or notebook) of cash and card tips
•  Report Tips to Employers – If employed, notify your manager monthly
•  Watch for 1099-Ks – Delivery drivers and freelancers may receive these from platforms
•  File on Time – Don’t delay—missed filings can lead to back taxes and penalties

If you’re overwhelmed by tip-related taxes or owe for previous years, IRS Back Tax Help can guide you in resolving it quickly and affordably.

The IRS isn’t changing the fact that tips are taxable, but with the Big Beautiful Bill, enforcement is likely getting tighter—and more automated. That means now is the time for tipped workers to build strong reporting habits and prepare for possible changes ahead.

Whether you’re a server, gig worker, or independent stylist, Priority Tax Relief is here to help you handle tip-related tax issues, resolve back taxes, and avoid IRS penalties.