Frontline workers across industries are poised to benefit from a generous (but temporary) tax exemption for tips as part of the Trump Administrations One Big Beautiful Bill. 

Until now, technicians had to report monthly tips greater than $20 to employers, who were required to withhold and report income and FICA taxes. 

That all changed on July 4th when the bill was signed into law. Now, when workers file in early 2026, they’ll be able to deduct up to $25,000 in tips annually from their taxable income. 

Any worker in “an occupation which customarily and regularly receives tips” (per the language of the bill) will enjoy tax-free tips until 2028, at which point Congress will either extend the law or let it lapse. 

This means your technicians will keep more of the money they earn in tips. However, they won’t keep all of it — and some technicians will benefit more than others. 

In this article, we’ll break down exactly how this bill will affect different workers in simple terms. 

The fine print: Key limitations of the bill, explained

As with any tax law, there are nuances in the language to watch out for. Here are some stipulations of the bill to keep in mind:

• Technically, not all tips are tax-free: Technicians will only be able to deduct up to $25,000 of tips from their taxable income. Few will actually wind up getting more than that in tips, but some may. 

• Those making over $150,000 annually won’t see the full benefit: At $150,000 in modified adjusted gross income (MAGI) or $300,000 for married technicians filing jointly, the tax-free tipping perk starts to phase out. The deduction drops $100 for every $1,000 of income above $150,000. So technicians making $180,000, for example, can only deduct $22,000 instead of $25,000. 

• Workers still need to report tip income and pay payroll taxes. The “tax-free” moniker isn’t quite accurate. Tipped workers don’t have to pay federal income tax, but they still need to pay FICA taxes, which fund Social Security and Medicare. 

• Federal income tax will be withheld from technician paychecks: Technicians will still see taxes deducted from their paychecks based on tips in the short-term — it’s just that they’ll get those amounts refunded later, when they file their income tax return. 

• Technicians aren’t the only ones who will benefit: Some independent contractors and business owners may also qualify. 

• Technicians earning $33,000 or less won’t see much difference: They typically owe nothing in federal income taxes (or very little), so they won’t really feel the impact of this law. 

Consider quickly briefing technicians on the limitations of “tax-free tipping” so they aren’t disappointed when their tax return arrives. 

How much more money technicians will actually keep per year

It’s useful to understand how the bill works, but what your technicians really want to know is how much extra money they’ll have in their bank accounts come tax season. 

On average, most US workers who earn tips will see about $1,800 more per year than they did in years prior. This breaks down to about $35 per week. 

This figure is just an estimate, though — and a broad one, at that. It’s an average of how much all tipped workers make across industries, from waitresses to nail technicians to movers. 

For a more precise look at how much more technicians stand to make per year, use the White House’s “no tax on tips” savings calculator. 

Bonus benefit: a tax cut on overtime pay

Some technicians may see an even heftier sum in their tax return as a result of a new tax break for overtime pay. 

As part of the bill, taxes on overtime wages will still be withheld from technicians’ paychecks. However, workers will be able to deduct up to $12,500 in overtime pay from their taxable income on their federal tax returns — even if they don’t itemize deductions.

What this practically means is that, on average, some workers will receive an additional tax cut between $1,400 and $1,750 annually. 

What tax-free tipping means for owners

The “big, beautiful bill” lets technicians keep more of every dollar they earn in tips. For owners, it’s the definition of a win-win: they can optimize technician compensation without increasing wages. Technicians get a bigger reward for great service, and you maintain stable labor costs. 

Better still, technicians will see an even bigger benefit to doing their best work. 

As their financial incentive to perform high-quality service grows, so too does their motivation on the job. Studies show financial incentives improve worker performance by an average of 22%. 

For owners, better technician performance directly translates to positive Google reviews, long-term customer loyalty, fewer reservices, and more. 

How Applause makes it simple for technicians to earn more tips

For industries like pest control, HVAC, lawn care, plumbing, and electrical, Applause helps companies not only improve technician retention but also build a reputation for outstanding service.

Tipping is central to incentivizing technicians to do their best work for every customer. But few customers think to tip, and even less have cash on hand. 

Applause’s platform offers home services companies a simple way to give technicians tips and customer feedback instantly. With a simple, user-friendly tipping feature, Applause makes it easy and non-intrusive for customers to reward exceptional service on the spot. 

This immediate feedback reinforces positive behaviors and encourages technicians to perform excellent service on every job. On average, companies that allow digital tips see 10% higher rates of customer satisfaction and 15% higher employee retention. 

Now that most technicians will keep more of the tips they earn, offering customers a simple way to show their appreciation may be more impactful than ever.