New Qualified Tips Deduction: Tax Relief for Service Workers Under H.R.1

H.R.1 introduces a new Qualified Tips Deduction, aimed primarily at workers in the service sector—restaurant staff, hotel crews, delivery workers, salon professionals, and anyone whose income regularly includes tipping.

The deduction allows taxpayers to write off the portion of tips that exceed the other business-related expenses allocated to that same activity. In simpler terms, the deduction applies when your reported tip income is higher than the costs tied to earning it.

Not all tips qualify. The law defines a qualified tip as a voluntary, non-negotiable payment given by a customer, consistent with tipping practices already in place before December 31, 2024. Automatic gratuities or payments negotiated as part of the bill do not meet the definition.

This deduction is available for tax years through the end of 2028, giving service workers a temporary but potentially valuable break. For many employees who live on a mix of hourly wages and tips, even a modest deduction can help offset the tax burden of variable income.

Overall, the provision recognizes the unique nature of tipped work and provides a practical benefit without adding complicated filing requirements.