Aug 20, 2025
Federal tip tax relief leaves questions in Montana
Servers and bartenders in Montana are eligible for a new federal income tax break on their tips this year but industry representatives said a lack of clear information could keep many from benefiting.
The deduction, a centerpiece of the GOP's One Big Beautiful Bill Act, allows workers to exclude the first $25,000 of their tip income from their federal taxable income.
Brad Griffin, executive director of the Montana Restaurant Association, called it a positive development and urged affected individuals to pay close attention to IRS guidelines.
"It's a deduction off the top line of your income tax," Griffin explained. "You still have to report all of your tips under federal law but you will be able to deduct the first $25,000 off the top line as you file your income taxes."
The Internal Revenue Service released formal guidance detailing how tipped workers can claim the new tax deduction retroactive to January 2025. Griffin noted the change only applies to federal income tax, not Social Security or Medicare withholding and is temporary, set to expire after three years.
The main obstacle now is awareness. Griffin pointed out the responsibility will fall on individual employees to know about the deduction and claim it correctly when they file their taxes, as many may overlook the complex change without help from a tax professional.
"It hasn't gotten a lot of publicity on it," Griffin acknowledged. "Gonna be some administrative challenges from the restaurant operator's perspective but really it's going to be more on the server to be aware of it and to file for the deduction."
Griffin added Montana's 2024 state-level tip taxation proceeded without industry pushback or operational problems. The IRS clarified the federal deduction is available regardless of whether taxpayers itemize. Employers must also file information returns and provide statements to employees detailing cash tips received and their occupation.
The deduction, a centerpiece of the GOP's One Big Beautiful Bill Act, allows workers to exclude the first $25,000 of their tip income from their federal taxable income.
Brad Griffin, executive director of the Montana Restaurant Association, called it a positive development and urged affected individuals to pay close attention to IRS guidelines.
"It's a deduction off the top line of your income tax," Griffin explained. "You still have to report all of your tips under federal law but you will be able to deduct the first $25,000 off the top line as you file your income taxes."
The Internal Revenue Service released formal guidance detailing how tipped workers can claim the new tax deduction retroactive to January 2025. Griffin noted the change only applies to federal income tax, not Social Security or Medicare withholding and is temporary, set to expire after three years.
The main obstacle now is awareness. Griffin pointed out the responsibility will fall on individual employees to know about the deduction and claim it correctly when they file their taxes, as many may overlook the complex change without help from a tax professional.
"It hasn't gotten a lot of publicity on it," Griffin acknowledged. "Gonna be some administrative challenges from the restaurant operator's perspective but really it's going to be more on the server to be aware of it and to file for the deduction."
Griffin added Montana's 2024 state-level tip taxation proceeded without industry pushback or operational problems. The IRS clarified the federal deduction is available regardless of whether taxpayers itemize. Employers must also file information returns and provide statements to employees detailing cash tips received and their occupation.
