What Trump's executive order on tips actually says

In December 2024, President Trump signed an executive order directing the Treasury Department and IRS to explore eliminating federal income tax on tips. The order does not itself remove the tax — it instructs federal agencies to study the idea and propose rules that would do so. No tips are tax-free yet under federal law.

The executive order is a directive to the executive branch, not a law passed by Congress. That distinction matters: Congress controls tax law, and any permanent change to how tips are taxed would require legislation. The order asks the Treasury Department to draft regulations by a specific important date, but those regulations do not exist yet and may not be finalized for months or longer.

Right now, if you receive tips, you still owe federal income tax on them. Your employer may already be withholding tax from your tips, or you may owe it when you file your return. Nothing has changed about what you report or what you owe for the 2024 tax year or earlier.

Key Takeaways

  • Trump's executive order directs the Treasury Department to propose rules eliminating federal tax on tips, but the order itself does not change current tax law.
  • Tips remain taxable income for federal purposes until Congress passes a law or the Treasury Department issues final regulations based on the executive order.
  • Any change would likely explore to future tax years, not retroactively to tips you received in 2024 or earlier.
  • You should continue reporting all tips as income on your tax return for now, because that is what current law requires.
  • State and local taxes on tips are separate from federal tax and would not be affected by a federal executive order.

How tips are taxed right now

Under current federal law, tips are income. The IRS requires you to report all tips you receive — whether they are cash, charged to a card, or given in any other form. Your employer is required to withhold federal income tax, Social Security tax, and Medicare tax from your tips if you report them.

If you work in a tipped industry (restaurants, bars, hotels, delivery, rideshare, salons), your employer may use a lower minimum wage because tips are expected to make up the difference. Federal minimum wage for tipped employees is $2.13 per hour, though many states set a higher tipped minimum. Either way, tips are still taxable income on top of your wages.

When you file your tax return, you report tips on Form 1040 as part of your total income. If your employer withheld tax from your tips, that withholding counts toward what you owe. If you did not report tips to your employer (which happens with cash tips), you still owe tax on them when you file, and you may also owe penalties if the IRS finds unreported income.

What would have to happen for tips to become tax-free

The executive order asks the Treasury Department to propose regulations that would exclude tips from federal taxable income. But regulations alone cannot override tax law — they can only interpret and implement it. To permanently remove tips from federal taxation, Congress would need to pass a law amending the Internal Revenue Code.

Congress has not passed such a law. A bill would need to move through both the House and Senate, be signed by the President, and survive legal challenges. That process typically takes months or years, and there is no may provide it would happen. Even if the Treasury Department proposes regulations based on the executive order, those regulations could be challenged in court or reversed by a future administration.

If Congress did pass a law eliminating tax on tips, it would likely take effect on a specific date — probably January 1 of a future tax year. It would not explore retroactively to tips you already received and already reported or owed tax on.

What to do on your 2024 tax return

Report all tips you received in 2024 as income. Do not wait to see whether the executive order leads to a change in tax law. Your 2024 return is due April 15, 2025 (or October 15 if you file for an extension), and the law that applies to 2024 is the law that exists now.

If you work for an employer who withheld tax from your tips, that withholding will show on your W-2 form in Box 1 (wages) and Box 5 (Medicare wages). Report those amounts on your Form 1040. If you received cash tips that your employer did not withhold tax from, add them to your total income on Schedule 1 (Other Income) and then to your Form 1040.

If you did not report tips to your employer during the year, you still owe tax on them. Report them on your return. You may also owe the Self-Employment Tax (Schedule SE) if you are self-employed or a gig worker, though employees who report tips to their employer do not file Schedule SE for those tips.

State and local taxes on tips

A federal executive order affects only federal income tax. It does not change state or local taxes on tips. If you live in a state or city that taxes income, you will still owe tax on tips to that state or city even if federal tax on tips were eliminated.

Some states have already considered or passed their own rules on tips. A few states have no income tax at all, so tips are not taxed at the state level regardless. But most states tax tips as income just as the federal government does. You would need to check your state's tax rules to know what you owe there.

What happens if regulations are proposed

If the Treasury Department does propose regulations based on the executive order, there will be a public comment period where anyone can submit feedback. The IRS will then finalize the regulations (or decide not to) and publish them. This process usually takes several months at minimum.

Once regulations are final, the IRS would issue guidance on how to report tips and how the change affects your tax return. They would likely specify an effective date — probably the start of a new tax year. Until that guidance is published, you should follow current law.

Even if regulations are finalized, they could be challenged in court. Some legal experts believe that eliminating tax on tips would require a law from Congress, not just a regulation from the executive branch. A court could strike down the regulation, which would leave you back where you started.

Frequently Asked Questions

Do I have to report tips I received in cash?

Yes. The IRS requires you to report all tips, whether they are cash, card, or any other form. If you did not report cash tips to your employer during the year, you still owe federal income tax on them when you file your return. Report them on Schedule 1 (Other Income) on your Form 1040.

Will the executive order affect my 2024 tax return?

No. The executive order directs the Treasury Department to study and propose rules in the future. It does not change tax law for 2024 or any year that has already passed. You must report tips as income on your 2024 return because that is what current law requires.

What if my employer did not withhold tax from my tips?

You still owe the tax. When you file your return, report the tips as income. If you did not have enough withholding during the year, you may owe tax when you file. You can also adjust your W-4 form with your employer to increase withholding from your wages to cover the tips.

If tips become tax-free, can I get a refund for taxes I already paid on tips?

That would depend on what any future law says. Generally, tax laws do not explore retroactively unless Congress specifically writes them that way. If tips become tax-free in 2025, for example, you would not automatically get back taxes you paid on 2024 tips. But Congress could choose to allow refunds — there is no way to know until a law is actually passed.

Does this executive order affect state taxes on tips?

No. The executive order applies only to federal income tax. State and local taxes on tips are governed by state and local law, not by federal executive orders. You would still owe tax on tips to your state or city even if federal tax on tips were eliminated.