08-07-2025
Little Rock bartender reacts to ‘no tax on tips' in ‘Big Beautiful Bill'
LITTLE ROCK, Ark. — A new federal tax break touted as a win for service workers may not be quite the windfall it first appears.
As part of the recently passed 'Big Beautiful Bill,' a sweeping budget proposal championed by former President Donald Trump, Section 70201 eliminates federal income tax on tips, but only up to a point.
Beginning in 2025, workers in tip-based jobs can deduct up to $25,000 in qualified tips from their taxable income. The deduction is set to last through the end of 2028. It applies only to cash or charged tips that are formally reported on IRS forms, such as W-2s or Form 4137.
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For Jordon O'Donald, a bartender at Brewski's in downtown Little Rock, the news sounded like a welcome break. She has worked in the industry for eight years and relies on tips to support her and her son.
'Some weeks it's $900 to $1,000, sometimes more, sometimes less,' she said. 'You really don't ever make the same money every single time.'
But her excitement quickly gave way to skepticism after hearing the fine print.
'Looking at it as a whole, it's honestly not the best,' she said. 'It sounds good, but I feel like we're just going to end up paying more money at the end of the year.'
O'Donald isn't alone in that concern. While the bill's headline suggests service workers will stop paying taxes on their tips, the reality is more complicated. Only the first $25,000 of qualified tips are exempt. Anything earned beyond that is still fully taxed.
And there are other restrictions:
The deduction phases out for single filers making over $150,000 and joint filers earning over $300,000.
Self-employed individuals must show a profit to qualify.
The business cannot fall under 'specified service trades' like law, accounting, consulting, or athletics.
Taxpayers must include a valid Social Security Number and, if married, file a joint return.
O'Donald says the cap could even discourage some workers from pushing past that $25,000 mark.
'Yes and no… because I feel like I would be striving to make under the $25,000 instead of trying to make over it,' she said.
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The Treasury Department has been given 90 days to publish an official list of occupations that 'customarily and regularly' receive tips—something that may further limit who qualifies.
Still, supporters say the measure is a step toward giving frontline service workers more breathing room in a volatile industry.
But O'Donald offers a warning to anyone who's celebrating too soon.
'Yes, I feel like they would be excited,' she said. 'But like I tell everyone—read the fine print.'
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