What gig workers and employees who get tips need to know about the new no‑tax‑on‑tips tax break

April 8, 2026

A new tax reform package signed by President Trump in July 2025 introduces significant changes for America's gig workers, who comprise roughly 10% of the workforce. The legislation establishes a deduction allowing workers to subtract up to $25,000 in tip income from their taxable income through 2028, though the actual savings vary considerably based on individual tax brackets and tip earnings. The law also modifies reporting requirements by raising the threshold for when platforms must issue 1099-K forms from $600 to payments exceeding $20,000 and 200 transactions.

Who is affected

Approximately 1 in 10 American workers who work as gig workers through platforms like Lyft, DoorDash, TaskRabbit, and Uber
Restaurant servers, barbers, house cleaners, babysitters, rideshare drivers, pet sitters, and other workers in occupations where tips are customary
Self-employed gig workers and tipped employees
Platform companies like Uber, Lyft, Venmo, and PayPal that process payments
Workers with Social Security numbers (those without are excluded)
Single people with incomes over $150,000 and married couples earning more than $300,000 (who see reduced deductions)
Married workers who must file jointly to qualify
Workers in "specified service trade or business" occupations, such as performing arts professionals (like the example of a self-employed pianist)
Gig workers in states with different thresholds, such as Maryland and Virginia
Workers in states like California and Massachusetts that don't allow tip income deductions on state returns

What action is being taken

The IRS is creating and maintaining a list of traditionally tipped occupations
Platform companies are processing payments and issuing Form 1099-K to gig workers based on the new $20,000/200 transaction threshold
Gig workers are using a new federal form, Schedule 1-A (Additional Deductions), to compute and report the tip tax break
Self-employed workers are making quarterly estimated tax payments
Self-employed workers are using their own records and platform company online accounts to determine tip income amounts for 2025
Platform companies are keeping records of tip income in workers' online accounts

Why it matters

This legislation represents a significant shift in tax policy that creates unequal treatment among workers based on how they earn their income, giving preferential treatment to tipped workers over those earning comparable amounts through non-tipped income. The changes have substantial financial implications, with House Republicans estimating average savings of $1,300 annually per tipped worker, though actual savings range from $840 for lower earners to $6,000 for higher earners in the 24% tax bracket. The increased reporting threshold from $600 to $20,000/200 transactions reduces administrative burden on both platforms and the IRS while potentially affecting tax compliance and worker awareness of reporting obligations. The complexity of eligibility requirements and restrictions creates potential confusion and compliance challenges, particularly for self-employed gig workers who must navigate additional limitations like the business loss restriction and specified service trade exclusions.

What's next

The IRS plans to issue more details on the "specified service trade or business" restriction in 2026 (though this restriction can be ignored for 2025)
For 2026, 2027, and 2028, employers and platforms that issue 1099 forms must separately show tip income on those forms (unlike 2025 when this was not required)
Platform companies are likely to issue Forms 1099-K to all gig workers voluntarily so workers can claim the tip deduction
The mileage deduction rate has increased from 70 cents per mile in 2025 to 72.5 cents per mile in 2026

Read full article from source: bridgedetroit.com