New Legislation Allows Some Workers to Avoid Federal Income Tax on Tips

A recent fiscal package, enacted into law, introduces a temporary tax break designed to benefit numerous workers across the country. This provision allows eligible individuals to avoid paying federal income tax on their tips.

The legislation, which was signed into law, mandated the Trump administration to publish a list of qualifying occupations within a specific timeframe. The Treasury Department has since released this list, encompassing 68 occupations. These range from traditionally tipped positions, such as waiters, to roles that don't typically involve gratuities, including plumbers, electricians, and air conditioning repairers.

While the list is not yet finalized, as it awaits publication in the Federal Register, the Treasury Department anticipates that the final version will closely resemble the preliminary one. The new tax rule could potentially save qualifying tipped workers a significant amount of money each. However, certain restrictions within the law may limit the tax break's overall value.

The tax break is subject to several limitations. Eligibility hinges on the worker's occupation being included on the Treasury's list of qualifying jobs. Furthermore, workers must earn less than a specified annual income to qualify, with a higher threshold for married couples filing jointly. There is also a maximum amount of tipped income that can be claimed per year. Finally, the provision is temporary, with a scheduled expiration date.

The Treasury Department has categorized the qualifying occupations into several types. The examples provided by the Treasury for each subcategory offer insight into the specific jobs covered by this tax break.