During the last election, President Trump made “No Tax on Tips” the centerpiece of what he claimed would be “pro-working class” tax reform. Congress moved to fulfill that promise when it created a new tax deduction as part of the “One Big Beautiful Bill” (OBBB) passed last summer. But new preliminary guidance from the Treasury Department about who can actually claim the new deduction makes increasingly clear just how unfair this policy really is to most working Americans.
OBBB allows workers with incomes less than $400,000 to deduct up to $25,000 of income they receive in tips from their taxable income through 2028. Many experts warned that such a policy would likely encourage savvy professionals to restructure their existing income as tips to benefit from the deduction, so Congress also attempted to limit it to only professions that “customarily and regularly” received tips in the past. Last week, the Treasury Department released a preliminary list of occupations that would qualify – and it includes many that neither voters nor lawmakers were probably intending to give a special tax preference.
For example, the list includes “digital content creators.” Most of the revenue content creators receive generally comes from subscriptions or advertising, but some platforms also allow viewers to make voluntary payments. This practice is particularly common on livestreaming sites like Twitch and OnlyFans, the latter of which is often used to stream sexually explicit content. What this means is that someone who posts adult content on OnlyFans can pay substantially less in taxes than most workers with the exact same income simply by soliciting voluntary payments from their viewers, because the IRS will consider those payments to be tax-deductible tips.
