Tax Experts Warn Tipped Workers May Struggle to Claim Over $4,400 in Tax Savings Despite New IRS Rules

Millions of US restaurant servers and bartenders could potentially save more than $4,400 in taxes this year under a new federal law. However, tax experts warn that many workers are at risk of missing out because the IRS has not updated its forms, leaving employees to manually track their tips using personal records.

The IRS published official guidance in Bulletin No. 2025-50 today, confirming that the 2025 W-2 forms will not display tip breakdowns. Instead, workers must calculate their eligible tips themselves, relying on Box 7 on their W-2, old tip reports, or personal logs. But many servers do not keep consistent records, according to Mark O'Saben, a tax expert quoted by USA Today.

Workers Must Track Tips Manually, IRS Confirms

The IRS guidance explicitly states that workers need to 'determine whether tips received were in an occupation that customarily and regularly received tips'—meaning servers and bartenders must prove that their job qualifies for the deduction.

However, many employees will find it difficult to do so. 'Many tipped workers don't keep consistent tip logs,' said Tom O'Saben, director of tax content for the National Association of Tax Professionals.

This means that tax preparers will have to 'piece together' whatever documentation exists—despite the guidance only arriving in late November with the April 15 filing deadline approaching.

For example, a server who earned $20,000 in tips last year could save approximately $4,400 in federal taxes if they are in the 22% tax bracket, according to Fidelity. But without tip logs or pay stubs showing the breakdown, claiming the full amount will be challenging. The Tax Policy Center has warned of 'confusion, delays, and missed opportunities' on 2025 returns, especially for workers lacking consistent tip records.

Who Qualifies, Who Doesn't

The tax break isn't limited solely to waiters and bartenders. Digital content creators, rideshare drivers, and delivery workers can also deduct up to $25,000 in tips from their income. But the benefit phases out for those earning above $150,000 a year—or over $300,000 for married couples.

High-income professionals face stricter limits. Lawyers, doctors, and consultants cannot claim the tip deduction at all, even if they receive regular tips from clients. The rules around overtime are similarly restrictive: only pay above your regular hourly rate qualifies, meaning bonuses for night shifts, weekend work, or holiday premiums are excluded.

The Race Against April

Employers are under pressure from workers eager to claim these deductions, but the IRS has not mandated that companies break out tip or overtime details on 2025 forms. The agency even granted employers penalty relief for this tax year, effectively acknowledging that the current system isn't fully prepared.

Tax preparation software companies have been updating their systems since the guidance was released in November. Nonetheless, workers should not delay. TurboTax advises individuals to begin logging cash tips and overtime hours now, even if their employer does not track such details.

It's advisable for workers to gather their 2025 pay stubs and create a simple spreadsheet noting dates, hours worked, and tips received—documentation that could prove crucial if the IRS requests proof later on.

The deduction is set to last only until 2028, giving workers just four years to take advantage of it before it expires. With the first filing deadline on 15 April 2026, the real challenge will be whether millions of eligible workers are aware of this tax break—or possess the records necessary to claim it.

Tax experts note that awareness remains surprisingly low despite the potential for significant savings, particularly among gig workers and those who primarily receive cash tips. As the deadline approaches, many will need to act swiftly to ensure they don't miss out on these benefits.