TUCSON, Ariz. (KGUN) — A new federal change promising “no tax on tips” is getting a lot of attention among service workers, but tax experts say the policy may not benefit everyone — especially some of the lowest-paid tipped workers.
The idea behind the change is simple: allow tipped workers to keep more of what they earn. For many in Tucson’s service industry, that initially sounds like long-awaited relief.
April Ballou, a server at Gus Balon’s Restaurant in midtown who has worked in the service industry for most of her life — including 17 years at the Tucson restaurant — said tips are essential in a job where income can fluctuate from week to week.
“Our income is never steady,” she said. “We never know from week to week what we’re going to be making.”
But while the phrase “no tax on tips” suggests widespread savings, experts say many tipped workers already owe no federal income tax due to their income level.
According to a 2024 report from The Budget Lab at Yale, more than one-third of tipped workers — 37% — owed no federal income tax in 2022 because their earnings were too low.
“That’s the part I don’t think they explained enough,” Ballou said. “At first I was kind of afraid of it, and I’m still just curious to see how it works out.”
A separate analysis from the Tax Policy Center found similar results. The non-partisan organization reported in early 2025 that even if tips were made tax-free, only about 60% of tipped workers would actually benefit.
Tax experts say that’s because workers don’t owe federal income tax until they earn above certain thresholds, and credits like the earned income tax credit can further reduce tax liability.
There’s also lingering uncertainty over which jobs qualify. The U.S. Treasury Department has released a preliminary list of tipped occupations that may be eligible for the deduction, but not all service-related jobs are included. Some workers in certain industries could ultimately be excluded once final regulations are in place.
“I really don’t know how it’s going to affect the federal part of it all,” Ballou said. “We won’t really know until it’s time to file.”
Experts say the biggest financial benefit from “no tax on tips” is likely to go to higher-earning tipped workers — such as those in fine dining — rather than lower-income servers working fewer hours or at smaller restaurants.
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Kenny Darr is a reporter for KGUN 9. He joined the team in January 2023. Before arriving in Arizona he was an Anchor and Reporter at KADN in Lafayette, LA. Share your story ideas with Kenny by emailing kenny.darr@kgun9.com or by connecting on Facebook, Instagram or Twitter.
