Misleading "No Tax On Tips" Eligibility - Creator's Corner Newsletter #29

Reader,

The Treasury dropped a preliminary list of 68 occupations that would qualify for Trump’s new “no tax on tips” deduction. In reality, a lot of those occupations won't qualify.

Why? Because of the SSTB test, the “specified service trade or business” categories defined back in Trump’s 2017 tax law. Health care, legal, financial services, and the performing arts (think of a self employed singer) all fall under SSTBs. That means some tipped workers in those fields may find themselves disqualified, even if they regularly receive tips.

Take an esthetician for instance. If they’re self-employed and not tied to a medical practice, their tips would qualify. But if they work in a medical office, they fall under health services, and the deduction could be off the table. Or consider a lounge singer: if they’re self-employed, they may be disqualified as a performing artist, but if they’re on payroll at a restaurant (not SSTB), those tips would qualify.

The bottom line is that this deduction is not one-size-fits-all. Your eligibility may hinge on whether you’re an employee or a contractor, and whether your occupation falls under an SSTB. For creators and entrepreneurs, this is a reminder that tax policy is always layered. What looks like a simple deduction can have Treasury and the Government contradict itself through different laws.

Stay tuned as I monitor this topic and as always, remember: Tax planning isn't a science. It's common sense.