Do my stylists get the new tax break on their tips?
Yes, your stylists can take this deduction. Hair stylists, barbers, nail technicians, estheticians, and other salon and spa workers fall within the “customarily tipped occupations” that qualify for the new No Tax on Tips deduction. This provision runs from 2025 through 2028 and lets eligible workers deduct up to $25,000 of qualified tip income on their personal federal returns.
The deduction phases out at higher income levels. For single filers, it starts phasing out at $150,000 of modified adjusted gross income. For married filing jointly, the phase-out starts at $300,000. Most stylists will fall well under these thresholds.
One thing your employees need to understand is that the deduction only applies to federal income tax. Their tips are still subject to Social Security and Medicare taxes. They’ll still see FICA withholding on those tips, and you’ll still owe the employer share. The payroll tax piece doesn’t change.
For you as the owner, this makes clean tip tracking in your payroll system more important than ever. Starting with tax year 2026, employers in tipped industries will need to report qualified tips in a new box on the W-2. That means your payroll records need to clearly separate tip income from regular wages, and the tracking needs to be accurate enough to support the new reporting requirement.
If you’re already running payroll through a system that tracks tips properly, you’re ahead. If tip tracking has been informal or inconsistent, now is the time to tighten it up before the 2026 requirement kicks in. Getting this right protects both you and your staff.
The deduction itself is claimed on the employee’s personal tax return, not through payroll. Your responsibility is getting the W-2 reporting right. Their responsibility is claiming the deduction when they file.
If you want to talk through how this affects your salon’s payroll setup or your own personal tax situation, reach out for a consultation. Simona is a CPA and Enrolled Agent who provides bookkeeping and tax services for salons and spas across New England and nationwide.
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