In restaurants across America, tipping is a way of life. It’s how servers, bartenders, and back-of-house staff make ends meet. But until now, those tips have always come with a tax bill. That’s starting to change. On July 4, 2025, a new federal law went into effect as part of the “One Big Beautiful Bill Act.” It includes a powerful incentive for hospitality workers: a federal income tax deduction of up to $25,000 on reported tips. For tipped employees earning less than $160,000 per year, this could be a financial game-changer.
Restaurant Owners Need to Know
When Brian Hassan, Co-CEO of Kickfin, joined Digital Hospitality to discuss the legislation, the bill hadn’t yet passed. But his message to restaurant operators was crystal clear—and even more urgent now that the law is official: without digital records, no one benefits. “Right now, 90 percent of restaurants are still paying out tips in cash,” Brian said. “And when tips aren’t tracked, employees miss out on more than just tax deductions. They lose the chance to prove income for a car loan or apartment lease. Employers, meanwhile, expose themselves to audits and penalties.”
What the Law Actually Says
The new law lets employees deduct up to $25,000 in tips from their federal income tax, provided their total income falls below the threshold. Social Security, Medicare, and state taxes still apply. And the deduction happens at tax time—not directly on a paycheck—so workers will need accurate records when filing their returns.
Kickfin’s internal data shows that the average tipped worker on its platform earns about $22,500 per year in tips.
In other words, most employees are eligible—if they can prove what they made. That’s a challenge for restaurants still relying on spreadsheets or end-of-shift cash-outs.
Why Accurate Tip Tracking Matters More Than Ever
Most restaurant tips are entered through POS systems like Toast or Shift4, but the details often stop there. Without a platform to record who received what, how it was split, and when it was paid, businesses lack the records needed for both tax compliance and day-to-day transparency.
“When the IRS or state agencies see a mismatch between what your POS reports and what employees claim, it triggers an audit,” Brian explained. “They’re not just looking at the workers. They’re coming after employers for unpaid FICA taxes and penalties.”
That’s why Kickfin and similar platforms are gaining traction. They eliminate cash handling, reduce reporting errors, and give operators a reliable way to track tips down to the cent.
This Isn’t Just About the IRS
As Brian pointed out, unreported income doesn’t just affect taxes. It limits access to everyday financial needs.
“If you can’t prove your income, you can’t get a lease or build credit,” he said. “We’re seeing more employees realize that doing things the right way actually helps them in the long run.”
For restaurants, the message is just as clear. Transparency around tipping leads to better culture, better retention, and better recruiting. In an industry where competition for talent is fierce, the ability to offer consistency and trust goes a long way.
Time to Get Ready
Even though this episode was recorded before the law passed, Brian’s advice to operators holds up stronger than ever: don’t wait. “This isn’t just about big chains,” he said. “This is about your neighborhood pizzeria, your family-owned bar, the people running the register and prepping food in back. If you’re paying tips, you need to be tracking them.” Whether operators choose Kickfin or another system, the priority is the same—get compliant, stay transparent, and support your team with the tools they need to thrive.
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