This tax season, service workers like waiters, bartenders, hair stylists and delivery drivers may not have to pay taxes on some of their tips under a new "No Taxes On Tips" provision in the One Big Beautiful Bill Act passed last year. But to qualify, tips need to be reported to the employer and claimed on federal tax forms.
The Texas Restaurant Association (TRA), which represents the state’s $70 billion food service industry, worked closely on the "No Taxes on Tips" provision, arguing it provides necessary relief to workers and strengthens the service industry. Kelsey Erickson Streufert, Chief Public Affairs Officer for the TRA, spoke with KERA's Ron Corning about how this is affecting service workers.
These interview highlights have been edited for length and clarity. To hear the full conversation, click the 'listen' button above.
Current impacts
Estimates from the National Restaurant Association show that a server earning $50,000 annually, with $40,000 coming from tips, could save about $3,000 in taxes this year.
Erickson Streufert said that's a significant difference, especially in the current economy where gas and food costs are rising. She said putting that money back into workers’ pockets could help boost spending at local businesses, like restaurants.
Refund checks
Both the "No Taxes on Tips" and "No Taxes on Overtime" provisions of the Big Beautiful Bill took affect in 2025, but because the legislation was passed mid-year, employees made their withholding decisions without knowing about these benefits.
"No one withheld their money in accordance with that new plan," Erickson Streufert said. "People are going to get an unexpectedly large refund check ... now that we're in tax season."
Tip fatigue
Erickson Streufert says technology has played a big part in this feeling of "tip fatigue." It's easy to flip around an iPad, no matter what consumer scenario you're in.
But she said customers are differentiating real service from full service restaurants.
"What we consistently see in restaurants is customers differentiate that service from all these other strange times when they're asked a provide a tip," she said. "Tipping is still a really strong practice at restaurants specifically. We expect that to hold strong."
She expects continued pushback on tipping in situations where the customer is not receiving service, and that customers will continue to tip in situations where the service worker is rewarded for good service.
Cash tips
There's a notion that cash tips are pocketed by the employee and not reported on their federal income taxes.
But Erickson Streufert says that's happening less often, as cash is disappearing from our economy. She also said that practice doesn't help service employees, who aren't taking full advantage of the new benefit.
"To qualify for this benefit, you have to have the tips actually reported on your W-2. That is what is going to be used for the calculation to claim the benefit," Erickson Streufert said. "So it's one more reason for restaurants and restaurant employees to frankly do the right thing, which is to report their tips as income and then take advantage of the tax benefit."
Ron Corning is the host of KERA's forthcoming talk show, NTX Now. Got a tip? Email Ron at rcorning@kera.org.
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