Many restaurants may need to rethink their mandatory gratuity policies if they want this income to count as qualified tips for their workers under the new tax laws.
The “no tax on tips” provision in President Trump’s One Big Beautiful Bill Act allows certain workers to deduct up to $25,000 in “qualified tips” per year from 2025 through 2028. The rub is that mandatory gratuities, the 15% to 20% that restaurants often impose on parties of six people or more, aren’t eligible for the deduction, a disappointment to the restaurant and foodservice industry, which held out hope for a different outcome.
The industry is the country’s second-largest private-sector employer, providing 15.7 million jobs, or 10% of the total U.S. workforce, according to a data brief from the National Restaurant Association based on the U.S. Census Bureau’s American Community Survey.
The service fee issue is sure to resonate with many restaurateurs. Research from the National Restaurant Association shows that 54% of full-service operators — including 67% of fine-dining operators — say their restaurants sometimes add a service charge or automatic gratuity to customer checks. Among this group, 12% add the service charge or automatic gratuity to all checks, while 88% only add it to parties that exceed a specific number of people (typically six or more) or to banquets, private events or catering events.
