Service Workers See Bigger Refunds Under 'No Tax on Tips'

Eligible workers can deduct part of their tip income from federal taxes, lowering taxable income and increasing refunds.

Apr. 16, 2026 at 3:38am

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A geometric abstract illustration using bold shapes and primary colors to conceptually represent tax deductions for tip income and overtime pay, without any text or identifiable elements.A new tax law provides welcome financial relief for service industry workers through deductions on tip income and overtime pay.New Orleans Today

A new tax law called the One Big Beautiful Bill Act allows eligible service industry workers to deduct a portion of their tip income from federal income taxes, resulting in larger tax refunds for many. While often referred to as 'no tax on tips,' the change doesn't make tips completely tax-free, but rather creates new deductions that can lower taxable income and boost refunds. The impact has been significant for some workers, though experts caution there are limits and caveats to the new rules.

Why it matters

Service industry jobs are a major part of the economy in cities like New Orleans, so the new tax deductions for tips and overtime pay have provided meaningful financial relief for many workers dealing with high inflation and the rising cost of living. The changes have also boosted morale and teamwork among restaurant staff, according to some employers.

The details

Under the new law, eligible workers can deduct up to $25,000 per year in qualified tips from their federal income taxes, reducing their taxable income and often increasing their refunds. A similar deduction applies to overtime pay - up to $12,500 for single filers and $25,000 for joint filers, but only for the 'bonus' portion of time-and-a-half pay. These deductions apply only to federal income taxes, not Social Security, Medicare, or state taxes, and they phase out for higher earners.

  • The new tax deductions went into effect starting with the 2026 tax filing season.
  • Unless extended by Congress, the tip and overtime deductions are scheduled to expire in 2028.

The players

Rachel Laciura

A part-time server at Drago's Seafood Restaurant in Metairie, Louisiana who saw a $600 to $700 increase in her tax refund this year due to the new deductions.

Heath Sykes

A full-time server at Drago's Seafood Restaurant who said this year's tax refund was the largest he has ever received in his 15 to 16 years working in the service industry.

Tommy Cvitanovich

The owner and operator of Drago's Seafood Restaurant, who said the new tax policy has improved morale and teamwork among his staff.

Brandon Curwick

A CPA and owner of Audubon Tax & CPA Services in New Orleans, who cautioned that there is some misconception about the 'no tax on tips' label and advised workers to keep detailed records.

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What they’re saying

“It definitely meant more money in my pocket.”

— Rachel Laciura, Part-time server

“Getting that full amount has definitely been easier just to get by with daily life. Gas is so expensive right now. Groceries are high. Rent's high.”

— Rachel Laciura, Part-time server

“It's helped me not to stress about paying my bills. I was able to pay my rent on time, and I didn't have to worry about putting fuel in my vehicle or food in my fridge.”

— Heath Sykes, Full-time server

“You're making more money, you're a lot happier working together, and that ends up for a better guest experience.”

— Tommy Cvitanovich, Owner and operator

“What this really does is create new federal income tax deductions for that type of income.”

— Brandon Curwick, CPA and owner

What’s next

The IRS and Treasury Department are treating this as a transition year, and tax forms have not yet been updated to clearly separate tip and overtime income. Because of that, the IRS is offering penalty relief for employers as payroll systems adjust.

The takeaway

The new 'No Tax on Tips' law has provided meaningful financial relief for many service industry workers in cities like New Orleans, where hospitality jobs are a major part of the economy. While the deductions don't make tips completely tax-free, they have resulted in larger refunds for eligible workers and boosted morale among restaurant staff. However, there are limits and caveats to the new rules that workers and employers need to understand.