With up to $25,000 in tax-free tips per employee, service businesses and savvy small business owners should take note:
Hire Your Spouse — Legitimately
If your spouse helps at your restaurant, salon, food truck, or mobile service business, this is the time to make it official:
Put them on payroll.
Have them perform actual customer-facing services (where tips are customary).
Report the tips properly (W-2 or Form 4137).
They can then claim the new tip deduction, up to $25,000 — completely tax-free at the federal level (subject to income thresholds).
Hire Your Teen (with real work)
Have a 16- or 17-year-old? Many states allow family employment for minors in family-owned businesses. Train them in client-facing roles where tips are normal:
Front-of-house hosting or food runner in a family restaurant
Shampooing or greeting in a salon
Customer support for mobile service scheduling
They get paid. You get a deduction. And up to $25K of their tips? Not taxed.
For Self-Employed Professionals
If you’re a self-employed stylist, mobile esthetician, or service provider, structure your pricing to encourage and track tip income. Just make sure:
Your business shows net income
Tips are tracked separately
You report tips correctly (yes, even for cash)
Don't Miss the Expanded Tip Credit (IRC §45B)
If you own a salon, barbershop, nail studio, or spa — you may now qualify for a federal tax credit on the employer share of Social Security and Medicare taxes paid on employee tips.
This was previously limited to food and beverage employers — now it includes beauty and spa services.
Timeline:
Effective for tips earned in 2025–2028, with a phaseout starting at $150K MAGI ($300K MFJ).