How ‘no tax on tips' could help, hurt Ohio workers
Under this temporary tax exemption, tipped workers can now deduct up to $25,000 of tipped income from their taxes. From that point on, tips will be federally taxed.
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Cate Rinehart has worked at Stav's Diner since it opened nine years ago. She believes this will benefit her in the long run, as tips are her primary source of income.
'Another $12,000, or whatever it is a year, in my pocket will make a big difference,' Rinehart said. 'I'm a single person. I do everything by myself. I don't have a partner or anything, so it's all on me, so it's going to make a big difference in my life.'
Rinehart has been in the service industry for 30 years.
'I basically don't get a paycheck,' Rinehart said. 'We make less than minimum wage, so all of my actual wages go to paying taxes, so I'm only working for tips. That's the only way I can pay my bills.'
Halee Wray is a bartender at Boston's Pizza Restaurant & Sports Bar. She also relies heavily on tips.
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'We got paid yesterday and I have about $300 deductions that have been taken out that my hourly did not cover because of the taxes that I'm paying on my tips,' Wray said. 'But my hourly is not enough to cover that amount, so I already know from the last two weeks, I need to put away $300 because at the end of the year, that's going to come back up on my taxes that I will owe.'
Wray said she sees the benefits of no tax on tips.
'I claimed a bunch of money for the last two weeks because I got that on my tax tips,' Wray said. 'But my hourly is $5.25. So that, you know, even if you're working 50 hours, it's not paying enough to make up for the tips.'
Wray said she's concerned this move has caused a lot of confusion.
'To hear the words and the lingo 'no tax on tips' does not mean we're not paying our taxes, and I know there's a lot of miscommunication about that,' Wray said. 'People have been writing on their receipts, like, 'Oh you don't have to pay taxes on this.' I'm like, 'I do, though, and only up to $25,000, and if you think that I'm only making $25,000, you're wrong.''
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Under the bill, both cash and credit card tips are included. Workers can deduct up to $25,000 in tips if they make less than $150,000 a year.
'I've always claimed all my tips, cash and credit card, because you can't buy a house or cars without that,' Rinehart said. 'So, it's going to make a big difference for me.'
The tax break applies only to federal income taxes. Payroll taxes, which pay for Social Security and Medicare, would still be collected, along with state and local taxes. This applies for all tipped workers, from servers, to hairdressers, nail technicians, and Uber drivers.
'I think it's going to help, especially a lot of the younger people, in the long run, too, being able to put a little bit more money back to be able to buy homes and things like that,' Rinehart said. 'That's a big chunk of change going out all the time, and when you're not really making a salary or anything, people don't realize how much it does affect us.'
It also allows workers to write off overtime pay up to $12,500 per year. Just like tipped workers, the amount they can deduct reduces if they make more than $150,000 per year.
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'A lot of us, as service industry employees, at the end of the year, comes and we owe thousands of dollars back on our taxes because it's just, our hourly is so low that it's not covering our taxes,' Wray said. 'So we're making decent money here, but at the end of the year, we're saving to pay our taxes.'
Wray said she has already scheduled an appointment with a tax expert because she anticipates more hurdles when filing for taxes next year than in years past.
The provision is in effect from now through 2028.
Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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