No Tax on Tips? Yes, Really.
Hello Aveda Institute Students & Graduates,
Great news for our beauty and wellness community!
Congress has created a major new tax break for tipped workers, and it directly benefits hairstylists, estheticians, nail techs, massage therapists, and other personal care professionals, including you.
Here’s what you need to know and what to do now to receive this benefit for 2025.
💰 What Is the “No Tax on Tips” Deduction?
For tax years 2025–2028, eligible workers can deduct up to $25,000 per year in qualified tips from their federal taxable income.
This applies to:
- Employees (W-2)
- Independent contractors / booth renters (1099)
- Salon & spa professionals who receive voluntary tips
✔️ 2025 counts. This deduction applies retroactively starting January 1, 2025
👩🎓 Who Qualifies?
You likely qualify if:
- You work in a customarily tipped occupation (hair, nails, massage, esthetics, spa services, etc.)
- Tips are voluntary (not service charges)
- Tips are reported (on W-2s, 1099s, or by you directly)
This deduction was designed specifically for industries like ours.
✅ What You Need to Do NOW (Action Steps)
To receive this tax break this year, follow these steps:
| Report ALL Your Tips |
| Report tips to your employer each month if you are an employee |
| If self-employed, track and report tips as income |
| If tips were not reported to an employer, they must be reported on your tax return |
👉 You can’t deduct tips that aren’t reported
- Keep Simple Records
- Daily or weekly tip log (notes app works!)
- POS reports, appointment software, or bank deposits
- Save records as you go don’t wait until tax time
- Adjust Your Withholding (Optional but Powerful)
Because this deduction lowers your taxable income, you may:
- Update your W-4 to reduce taxes withheld from each paycheck
- Keep more money throughout the year, not just at tax time
🌟 Why Reporting Tips Actually Helps You
Reporting your income fully doesn’t just keep you compliant, it helps your future:
- Higher Social Security & disability benefits
- Better loan and mortgage approval
- Access to tax credits
- Stronger earning data for beauty school programs
- Peace of mind (IRS issues are stressful and avoidable)
⚠️ Important Notes
- Income limits apply (deduction phases out above $150,000 single / $300,000 joint)
- State taxes may differ from federal rules
- Documentation must be accurate and verifiable
**A tax professional can help you do this correctly.**
File Accurately at Tax Time
- Tips must appear on your W-2, 1099, or be reported by you
- The deduction is claimed on Schedule 1-A of your federal return
- For 2026 and beyond, tip income will be separately listed on W-2s
✨ Bottom Line✨
This is one of the most valuable tax benefits ever created for beauty professionals but you only receive it if you report your tips correctly. If you’re unsure how this applies to you, we strongly encourage speaking with a qualified tax professional.
We’re excited to see our students and graduates keep more of what they earn. You deserve it. 💙
Warmly,
Aveda Institute Portland Team
Disclaimer: This email is for informational purposes only and does not institute legal or tax advice. Tax rules may change, and individual circumstances vary. Consult a qualified tax professional for guidance.
Updated: 2/10/2026