During the State of the Union address, President Trump promised the largest tax refunds in American history this year after Congress passed steep tax cuts this past summer.
“With the great big beautiful bill, we gave you no tax on tips,” Trump said before introducing guest Megan Hemhauser, a Pennsylvania mother and waitress. “Megan is here this evening, and she’s happy to tell you that she is so, so much richer because with no tax on tips, no tax on overtime, and our expanded child tax credit, Megan and her husband will take home more than $5,000 extra.”
Trump’s promise of higher tax returns for working class Americans comes as U.S. surveys increasingly show people disapprove of Trump’s handling of the economy, according to a recent NPR/PBS News/Marist poll. Trump often points to his change to taxes on tips as an example of how he’s trying to mitigate rising costs — and address voters’ concerns.
Garrett Watson, at the Tax Foundation, said refunds will be higher on average this year for the middle class. Watson pointed to these new tax policies Trump campaigned on just over a year ago: tax breaks on tipped income, overtime pay and social security benefits.
“Often we see federal taxes, it’s more slow going,” Watson said. “That contrasts with a lot of these new ideas, which very much were brand new, in their infancy, and were created in the context of the 2024 campaign.”
Trump first coined the phrase “no tax on tips” in Las Vegas. Then-candidate Vice President Kamala Harris quickly endorsed the campaign promise. And during Trump’s first year in office, the GOP-controlled Congress passed a tax deduction of up to $25,000 for tipped wages in the One Big Beautiful Bill Act.
This new tax deduction leaves tipped workers — who make up 12% of the U.S. workforce according to a TurboTax survey — wondering how to get this new deduction, whether they qualify, and if it will make a financial difference.
“There’s a lot of confusion or popular misperception, as there always is, with tax changes and new items,” Watson said.
Tipped workers expect relief
Ashlee Armstrong is a waitress, wife and mother of three.
She waits tables and greets travelers at the local airport in Kalispell, Mont. — southwest of Glacier National Park.
Tips make up a significant portion of her annual wage, which Armstrong estimates at $85,000. This year, she’s looking forward to tax season.
“If I have $25,000 taken off of that, it will impact me,” Armstrong said.
For Armstrong, the tip deduction will keep her family from jumping up into a higher tax bracket — one she can’t afford. And she’s not alone.
In Cambridge, Mass., bartender Joe McGuirk, 60, expects a bigger-than-normal tax break.
“It will probably end up being a boon to me,” McGuirk said. “I have one friend who’s already started doing the taxes. It appears that he’ll be getting about $5,800 back as opposed to the $1,500 he might have gotten back last year.”
Still, McGuirk — who has tended bars for 35 years — said he doesn’t think this year’s tax break will meaningfully change his financial situation.
“With the cost of everything going up, this obviously will help me,” he said. “With that said, other trends in our society make it, you know, it’s really like using a spoon to deal with a flood.”
Housing in Cambridge is his biggest financial pressure, but it wasn’t always.
“There’s a lot of work for me here,” he said. “Good work that for decades allowed me to keep a roof over my head and get two kids through college. Now, my income is not commensurate with housing costs.”
Back in Kalispell, the biggest cost for Armstrong is health care.
“It’s huge,” she said. “My daughter was having an asthma situation and had to stay in the children’s hospital ward for three days. And we don’t qualify for scholarships because we make too much, but we don’t make enough that we can actually afford those kind of bills.”
Armstrong is the only one in her family with health insurance — through her job. Her kids and husband pay out of pocket for medical costs.
“We’re middle class and we’re also not wealthy enough that we can afford, you know, to pay insurance monthly,” Armstrong said.
How it works and who qualifies
For those who do file for the benefit, it’s up to the employees — not the employer — to separate out tips from other wages on their tax forms this year, according to Lisa Greene-Lewis, a CPA and tax expert at TurboTax. The Treasury Department is not requiring employers to do that as taxpayers and businesses transition to the tax law changes.
While some employers will separate tips from other wages, Greene-Lewis said it’s up to tipped workers and their accountants to double check their tipped earnings and then report the deduction.
She said tax platforms have added a section for tipped workers this year.
Greene-Lewis recommended adding up all the tips earned on paystubs to make sure no tips are missed. While it’s added work, Greene-Lewis said TurboTax data shows it’ll be worth it.
“We are seeing that people will see an increased refund of up to $1,000 or lower balance due … compared to last year” Greene-Lewis said. “So I would definitely take advantage of these.”
As for eligibility, the Treasury Department issued guidance on the jobs that qualify for the tip $25,000 deduction: bartenders, waiters, beauticians, ride share drivers, baristas. etc. Workers who make over $150,000 annually can’t deduct tips from their taxable income.
Treasury Department and White House officials did not respond to requests for an interview on the new tip deduction.
Will it last?
In Las Vegas, Starbucks barista Yolanda Garcia said she expects to get a financial bump this tax season — but nothing major.
“I think it’s going to help a little, but it’s not much because you’re going to get something once a year,” Garcia said.
Garcia and her husband support two daughters. For her family, rising grocery prices is the chief concern.
“I used to go to for groceries like every single week,” Garcia said. “Now, I go like every two weeks, and now I buy like the necessities, not the things that I want.”
Both Garcia and McGuirk in Cambridge said this new tax benefit could make a real difference if it was permanent. As it stands, the tax deduction on tips expires in 2028.
“Even if it is boon to me, it’s nothing I can count on except for the next three years,” McGuirk said.
