No Tax on Tips: A Financial Boost for America’s Workers and Support for Small Businesses

By SBE Council at 30 March, 2026, 9:59 am

This “Working Families Tax Cuts Act” provision helps workers and gig-economy entrepreneurs keep more of what they earn while supporting Main Street businesses.

By Karen Kerrigan –

The “Working Families Tax Cuts Act” (One Big Beautiful Bill) is making a positive difference for small business owners and their employees. Signed into law by President Trump in July 2025, the package is delivering significant tax relief and investment incentives that are helping create a stronger environment for financial stability and economic growth. As I noted regarding the significance of the package as it was making its way to President Trump’s desk in July of 2025:

“Make no mistake, this bill is a big deal for American small businesses. It will unleash capital, encourage investment in small businesses and their innovative ideas, bolster infrastructure and digital access, and create opportunity in every corner of America.”

From making the 20% small business deduction and lower personal rates permanent to the restoration of immediate R&D expensing and boosting investment incentives, the Act’s provisions are helping small businesses compete, innovate, and grow. In SBE Council’s wrap-up survey of small business performance in 2025, 61% of small business already reported positive cash flow effects from the bill’s provisions and 73% anticipate positive impacts from the bill this year.

NO TAX ON TIPS

One of the more popular and impactful provisions within the package is “No Tax on Tips.” The new deduction applies to up to $25,000 in qualified tips, ensuring meaningful relief for workers while targeting the support to those who need it most.

Benefits Extend Far and Wide. This provision is significant for Americans who depend on tipped income and for the small businesses employing them. About 6 million people report tipped wages according to the IRS. When taking gig workers into account, the number of people in tipped occupations rises to approximately 24 million U.S. adults. For many tipped workers in certain industries, tipped income represents a disproportionate share of their wages – for example, as of Q3 2024, tips made up 57.4% of compensation for many restaurant workers.

Self-Employed Benefit. IRS guidance makes it clear that “No Tax on Tips” also applies to self-employed individuals who receive qualified tips. Gig and self-employment work often leads to the launch of new enterprises.

Rewards Work and Supports Local Businesses. For small business owners, the value of “No Tax on Tips” helps them support their workers and strengthens the appeal of certain jobs. Allowing workers to keep more of their tipped income boosts employee morale, strengthens workforce stability, and helps make tipped jobs more financially rewarding.

No Tax on Tips offers relief and support that rewards work. The provision lets workers keep what customers choose to give them based on the quality of service they provide and their hard work.

Combined with the other important provisions of the “Working Families Tax Cuts Act,” no tax on tips increases take-home pay, fuels opportunity, and helps to strengthen a broader pro-growth environment that helps Main Street and local economies thrive.

Karen Kerrigan is President & CEO of the Small Business & Entrepreneurship Council.