Restaurant Workers: How to Calculate Your OBBB Savings

If you work in a restaurant, bar, or any tipped position, the One Big Beautiful Bill Act just gave you a massive tax break. Starting in 2025, you can deduct up to $25,000 in tip income from your taxes. That could mean thousands of dollars back in your pocket.

But here's the thing—most servers, bartenders, and delivery drivers don't even know about this yet. And even if they do, figuring out exactly how much you'll save can be confusing with all the income limits and phase-outs.

This guide breaks it all down in plain English. No tax jargon, no complicated formulas—just a clear explanation of how this works and how much money you could save.

What is the "No Tax on Tips" Deduction?

The OBBB Act introduced a new tax deduction specifically for people who earn tips. Here's how it works:

• You can deduct up to $25,000 of your tip income from your taxable income
• This deduction is available from 2025 through 2028
• You don't need to itemize to claim it—everyone gets it
• It applies to tips reported on your W-2, 1099, or Form 4137

Important: Your tips still need to be reported for Social Security and payroll taxes. This deduction only affects your income tax.

Who Qualifies for This Deduction?

To claim the no tax on tips deduction, you need to work in an occupation where tipping is customary. The IRS is publishing an official list by October 2, 2025, but the most common qualifying jobs include:

Restaurants and Bars

• Servers and waitstaff
• Bartenders
• Bussers
• Food runners
• Hosts/hostesses (if you receive tips)
• Sommeliers

Delivery Services

• Pizza delivery drivers
• Food delivery (DoorDash, Uber Eats, etc.)
• Grocery delivery (Instacart, Shipt)

Personal Services

• Hairstylists and barbers
• Nail technicians
• Massage therapists
• Valets

Hospitality

• Hotel bellhops and porters
• Housekeeping staff
• Casino dealers
• Tour guides

Transportation

• Taxi drivers
• Rideshare drivers (Uber, Lyft)
• Limousine drivers

If your job involves receiving tips from customers as a regular part of your income, you probably qualify. The IRS will provide specific guidance later this year.

Income Limits: Will You Qualify?

Here's the catch: if you make too much money, the deduction starts to phase out. But don't worry—most restaurant workers will qualify for the full deduction.

The phase-out works like this:

• If you're single and make less than $150,000: Full deduction
• If you're married and make less than $300,000: Full deduction
• Above these amounts: The deduction gradually reduces

Let's be real—if you're a server making over $150,000, you're probably working at a very high-end restaurant, and the partial deduction will still save you money. For the vast majority of tipped workers, you'll get the full benefit.

How Much Will You Actually Save?

Your actual tax savings depend on your tax bracket. Here's what the deduction could mean for different income levels:

Example 1: Entry-Level Server

Annual wages: $15,000
Annual tips: $12,000
Tax bracket: 12%
Tax savings: $1,440/year

Example 2: Experienced Bartender

Annual wages: $25,000
Annual tips: $25,000 (full deduction)
Tax bracket: 22%
Tax savings: $5,500/year

Example 3: Fine Dining Server

Annual wages: $30,000
Annual tips: $40,000 (only $25k deductible)
Tax bracket: 22%
Tax savings: $5,500/year

Example 4: Delivery Driver

Annual wages: $20,000
Annual tips: $8,000
Tax bracket: 12%
Tax savings: $960/year

Even if you don't make $25,000 in tips, you still get to deduct whatever you do make. Every dollar counts.

What About Self-Employed Workers?

If you're a freelance hairstylist, independent delivery driver, or run your own service business where you receive tips, you can still claim this deduction. However, there's one important restriction:

You cannot claim the deduction if you're self-employed in what's called a "Specified Service Trade or Business" (SSTB). This includes things like consulting, financial services, or health services where the income is based on your reputation or skill.

But here's the good news: most tipped workers don't fall into this category. A self-employed hairstylist working at a salon? You're good. An independent massage therapist? You're good. A freelance bartender for catering events? You're good.

If you're unsure whether your self-employment counts as an SSTB, talk to a tax professional. But chances are, if you're reading this article, you qualify.

How to Claim the Deduction

Claiming the tip deduction is straightforward:

1. Keep track of your tips: Make sure all your tips are properly reported throughout the year
2. Get your tax documents: Your employer should provide a W-2 showing your total tip income
3. File your taxes: Use the deduction on your 2025 tax return (filed in early 2026)
4. Include your Social Security Number: Required to claim the deduction
5. File jointly if married: You must file a joint return if you're married to claim this deduction

Most tax software (TurboTax, H&R Block, etc.) will automatically include the OBBB Act deductions. Just make sure your software is updated for the 2025 tax year.

Common Questions Restaurant Workers Ask

Do I still have to report my tips?

Yes! This deduction doesn't change the requirement to report your tips. You still need to report tips to your employer and pay Social Security and Medicare taxes on them. The deduction only affects your income tax.

What if I work multiple tipped jobs?

You can combine tips from all your jobs, up to the $25,000 limit. If you work as a server at Restaurant A and bartend at Restaurant B, add both together.

Can I claim this if I only work part-time?

Absolutely! There's no minimum hours requirement. If you're a part-time server making $5,000 in tips, you can deduct that $5,000.

What about cash tips?

Cash tips count, but you need to report them properly on Form 4137 when you file your taxes. This is important—unreported cash tips can't be deducted.

Does this affect my payroll taxes?

No. You still pay Social Security and Medicare taxes on your full tip amount. This only reduces your income tax.

Don't Leave Money on the Table

Look, restaurant work is hard. Long hours, demanding customers, and unpredictable income. The OBBB Act's no tax on tips deduction is one of the biggest wins for service workers in years.

If you earned $20,000 in tips last year and you're in the 22% bracket, that's $4,400 back in your pocket. That could be:

• Three months of rent
• A reliable used car
• An emergency fund
• That vacation you've been putting off
• Paying down debt

The deduction is only available through 2028, so make sure you take advantage of it while you can. And remember—you don't need to hire an expensive accountant to claim it. Most tax software handles it automatically.

What Happens After 2028?

Currently, the no tax on tips deduction is only in effect from 2025 through 2028. After that, unless Congress extends it, the deduction goes away.

But here's the thing: if this deduction proves popular (and with millions of restaurant workers benefiting from it, it probably will), there's a good chance it gets extended or made permanent. Politicians love popular tax breaks.

For now, focus on maximizing your savings over the next four years. That's potentially $22,000+ in tax savings if you max out the deduction each year.

Bottom Line

The OBBB Act's no tax on tips deduction is a game-changer for restaurant workers, bartenders, delivery drivers, and anyone else who earns tips. Up to $25,000 of your hard-earned tip income is now tax-free (for income tax purposes).

Most service workers will see savings between $1,000 and $5,500 per year. That's real money that can make a real difference in your life.

Use our calculator to see your exact savings, make sure your tips are properly reported, and claim the deduction when you file your 2025 taxes in early 2026.

You've earned it.