In 2025, workers can deduct up to $25,000 of tips from taxable income, reducing tax burden. IRS requires tip records be kept and reported monthly. New tip deduction part of “One Big, Beautiful Bill” Act, benefiting 6 million tipped wage workers, but W-2s won’t reflect new deduction.

IRS won’t update W-2 forms in time, so workers must calculate tips themselves to utilize deduction. Employers must report qualified tips on W-2s, but many won’t have systems in place. Workers can use Box 7 on W-2 as a proxy for tip deduction or rely on their own tip reporting to employer.

Tipped workers who are self-employed can also benefit from tip deduction, but must maintain detailed records. Deduction is up to $25,000 total, not per employer. Workers must report tips to employer regularly and keep thorough records throughout the year.

Read more at Yahoo Finance: Secure Your Chances of Getting the New Tip Tax Break With This Expert’s Advice