Earlier this year I wrote about the No Tax On Tips portion of the One Big Beautiful Bill Act (OBBBA) and provided details on the occupations that qualify for the tax break. The Service recently provided additional details that further disqualify many from taking the deduction.
The clarification provided a definition for the type of tips that qualify, and others that don’t. The updated details include…
1 – Qualified tips must be paid in cash or an equivalent medium, such as by check, credit card, debit card, gift card, or tangible or intangible tokens that can be readily exchanged for a fixed amount in cash.
You can’t give someone a car and call it a non-taxable tip.
2 – Qualified tips must be received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool.
If you own a business that has tipped employees, you can’t automatically say that $25,000 of their normal compensation is tips.
3 – Qualified tips must be paid voluntarily by a customer and not be subject to negotiation. Certain service charges can not be included.
An example would be the case of a restaurant that imposes an automatic 18% service charge for larger parties and distributes that amount to waiters, bussers, and kitchen staff. If the charge is added with no option for the customer to disregard or modify it, the amounts distributed to the workers do not qualify.
4 – Any amount received for illegal activity, prostitution services, or pornographic activity is not a qualified tip.
Let me leave you with this…
It’s that last part that got me thinking about the Heidi Fleiss Case.
For those who may not remember, Ms. Fleiss ran an illegal prostitution ring in L.A. She was convicted on pandering charges that were later overturned but ended up doing 20 months in the slammer for income tax evasion.
Whenever they can’t get someone on criminal charges, they always resort to income tax evasion because it’s so easy to prove.
All they need to do is prove that a person received the money. They then pull their income tax return, show the judge that the income wasn’t picked up on the return, and you’re guilty as charged.
Do not pass go. Do not collect $200. You’re the next contestant on that new, fun filled, family game show named, “Don’t Drop The Soap.”
Please realize that all income, whether legally or illegally gained, is subject to income tax in these United States. The new regulations are just saying that you don’t get a tax break if a portion of the illegally gotten gains were tips.
Just as an aside, in Continuing Professional Ed they teach us that if we’re doing a return for a criminal, rather than stating that their profession is something like “Hitman” or “Hooker”, we are able to type in, “Fifth Amendment Income.” They act like the people reviewing the return at the IRS wouldn’t immediately refer it to the Justice Department for prosecution knowing that we’d be the first person questioned.
For some reason, they never point out that no practitioner with anything that remotely resembled cognition would ever work for a criminal in the first place.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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