Last edited Fri May 23, 2025, 08:41 AM - Edit history (4)
The new law does specify "cash tips", but I didn't see where it changed the definition of what constitutes a "cash tip" in the IRS code. The legal definition doesn't necessarily match the common English meaning and currently the IRS considers "cash tips" to include tips made on credit and debit cards.
https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting
All cash and non-cash tips an received by an employee are income and are subject to Federal income taxes. All cash tips received by an employee in any calendar month are subject to Social Security and Medicare taxes and must be reported to the employer. If the total tips received by the employee during a single calendar month by a single employer are less than $20, then these tips are not required to be reported and taxes are not required to be withheld. Cash tips include tips received from customers, charged tips (for example, credit and debit card charges) distributed to the employee by the employee's employer and tips received from other employees under any tip-sharing arrangement. Tips also include tips received by both directly and indirectly tipped employees.
I don't know who the woman in the OP video is - does she have some particular expertise in tax law, or is she just assuming what "cash tips" means to the IRS?
On edit:
The NYT says the exemption does apply to credit card, debit card, etc., tips:
https://www.nytimes.com/2025/05/21/dining/no-tax-on-tips-bill.html
What counts as a tip?
In the tax code and in this legislation, the term “cash tip” applies to tips given in bills and coins, on a credit or debit card, or via the business’s electronic payment system. It has not yet been determined whether tips that go directly to a server via a service like Venmo or PayPal would qualify as cash. Service charges, which are legal in some places, are added by the business and do not count as tips.
[...]
Does tipping in cash make a difference?
Not for tax purposes. It does reduce a restaurant’s credit card processing fees, which are charged as a percentage of the total bill (about 2 percent to 3.5 percent of each transaction, and sometimes a 30-cent “swipe” fee). But it doesn’t leave a paper trail for the employee or employer to track, which can increase the risk of tax fraud. Some cash tips go unreported, which is considered tax evasion, but the scale of the problem has never been determined. As fewer customers pay with cash, it is probably diminishing.
Kiplinger disagrees:
https://www.kiplinger.com/taxes/no-tax-on-tips-bill-approved#:~:text=Here%27s%20a%20quick%20summary.,up%20to%20$160%2C000%20a%20year.
Despite the excitement over this bill, there are some things the Senate bill doesn’t cover.
A key note is that this bill only applies to cash tips. Though, for IRS tax purposes, literal cash tips, credit card tips, and tips made through electronic payment methods like apps are traditionally treated the same. Non-cash tips are still considered taxable by the IRS but are not covered under this bill.
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