In this issue

•  Quick question: What’s the latest on tracking and deducting your tips?

• In the news: How small businesses can navigate the government shutdown.

• Apply for this grant: $10,000 from the Verizon Digital Ready program.

• One more tip: Get free, local business mentoring.

Quick question: What’s the deal with “no tax on tips?”

You might have heard that the “big, beautiful bill” means there’s a new tax deduction for tips. Here’s what has changed:

• Employees and self-employed individuals can deduct up to $25,000 in qualified tips for the 2025-2028 tax years.

• To take the full deduction, your modified gross income must be $150,000 or less $300,000 for joint filers). If you earn more, you can take a partial deduction.

• If you get tips: You won’t recognize savings until you file taxes and claim the deduction. If you don’t report it, you can’t deduct it.

• Otherwise, you shouldn’t have to do anything differently — assuming you’ve been accurately tracking and reporting your tips.

Here’s what you need to know about managing tips for yourself or your employees, before and after these changes. 

How business owners should handle their own tips

If you earn tips, you’re supposed to report them as income and pay taxes on them.

Even cash? Yes — reporting all tips (both cash and credit card ones) is the law. But historically, cash tips are tougher to track. In many cases, they go unreported.

Going forward, the new deduction might provide a greater incentive to report them.

“It’s hard for the IRS to give you a deduction if you don’t tell the IRS that you have received those tips,” says Kristin Baldwin, Director of Compliance at CoAdvantage, a professional employer organization (PEO).

Use point-of-sale software to track tips your customers pay with credit or debit cards. And to keep track of your cash tips, maintain a log of how much you received each day.

How business owners should handle their employees’ tips

According to the IRS, workers making $20 or more in tips per month need to report them to their employer.

Lots of small businesses track employee pay by syncing their POS systems with their payroll software. The POS system records each employee’s credit card tips and feeds that information to the payroll software. From there, most payroll software programs automatically deduct the appropriate amount in taxes.

To track cash tips, you can distribute Form 4070 to employees. This form asks employees to list their total cash tip amount each month. Then, you’d manually add those amounts to employees’ taxable income within your payroll software.

See our list of tax deadlines for more details on when employment tax forms and deposits are due.

Who can now deduct tips?

According to the IRS, the new “no tax on tips” deduction applies to tipped workers in eight major industries:

• Food and beverage.

• Entertainment and events.

• Hospitality.

• Home services.

• Personal services.

• Personal appearance and wellness.

• Recreation and instruction.

• Transportation and delivery.

For more details on specific qualifying jobs in each category, see the Federal Register’s list of qualifying occupations.

What’s a “qualified tip?”

“Qualified” tips must be paid voluntarily by a customer. And the amount cannot be subject to negotiation — it’s entirely up to the customer.

Mandatory fees, like service charges, are “unqualified” tips. These wages should be lumped into a different category than tips that a customer paid voluntarily.

Baldwin says the key to accurate reporting is making sure to distinguish between ”qualified” and “unqualified” tips. If you don’t have separate labels for them (Baldwin refers to these labels as pay codes), then you won’t be able to accurately calculate your deduction at the end of the year.

Employers should still take taxes out of employees’ tips

Some of Baldwin’s clients say their employees have asked why taxes are still being deducted from their tips. This is normal — tips will still be taxed like they have been in the past.

The difference happens when the recipient files their taxes. This will reduce the total amount of income that they owe income tax on. That could decrease how much they owe in taxes at the end of the year or increase the size of their refund. Maybe it’ll even help bump them down to a lower tax bracket.

But they still have to pay taxes on tips throughout the year.

In the news: What does the government shutdown mean for small businesses?

 The government has been shut down since Oct. 1, and Congress still hasn’t approved a spending bill. My colleague Karrin Sehmbi says this could delay SBA loan approvals, impact federal contractors and potentially slow down sales. She shared her advice for small-business owners in the video below:

Government contractors could be hit the hardest. If you have a contract with the federal government, she says, one of your first steps should be getting in touch with your contracting officer. And don’t forget to keep a record of losses associated with the shutdown.

Have an SBA loan? Keep making your payments on time. And here’s more detail about how each type of SBA loan could be impacted.

Grant opportunity: $10,000 from Verizon

NerdWallet’s Karrin Sehmbi finds and shares these grant opportunities.

This winter, Verizon will award 50 grants, each worth $10,000, to U.S. small-business owners. The grant application opened on Oct. 1 and will close on Dec. 10.

Click here to see the application.

The grant program is a partnership with the Local Initiatives Support Corporation (LISC) and is part of Verizon’s Digital Ready program. That’s a library of free online resources for small-business owners that includes dozens of courses, networking events and quick tips spanning a variety of topics.

To gain access to the grant application, you must first complete two Digital Ready online courses or events. Other than that, you must run a for-profit business operating in the U.S., Puerto Rico or U.S. Virgin Islands, and you must be over the age of 18 to apply.

Take advantage of this opportunity for some continued learning and development along with a shot at a sizable chunk of change to grow your business. You have nearly two months to complete the requirements and application. Good luck!

One more tip: Free advice and mentoring

 Small Business Development Centers are located around the country and offer free counseling to aspiring and existing business owners. This includes guidance on business planning, finances and lending, among other topics.

You can find an office near you on the SBDC’s website. With more than 900 locations, the SBDC is a great way to meet a local mentor who can give you specialized advice and connect you with other people in your industry.