No Tax on Tips: Why Cash Gets a Break—But Digital Tipping Still Leads the Way

As of July 4, 2025, the U.S. government officially signed the No Tax on Tips Act into law as part of the sweeping “One Big Beautiful Bill.” For the next four years, tipped workers in qualifying roles—such as bartenders, servers, dockhands, hair stylists, and more—can deduct up to $25,000 of cash tip income from their federal income taxes. But here’s the fine print: the tax break only applies to cash.

If you earn or send tips digitally—via payment apps like Radium Payments—this new law doesn’t change your tax obligations. Here’s what workers, tippers, and now employers need to know.

What You Should Know

1. Only cash tips qualify for the new deduction.

According to the IRS, the new deduction applies to cash, credit/debit card tips, and pooled tips—provided they are not processed through third-party apps. That means physical cash or tips directly processed by an employer are eligible. Tips sent via apps like Radium, Venmo, PayPal, or Cash App do not qualify for the new deduction.

2. Digital tips remain fully taxable.

The IRS continues to treat digital tip income as fully reportable and taxable. This includes tips paid via mobile payment apps, which will still be included on Form 1099-K for eligible workers—often those receiving over $5,000 in app-based payments. There’s no exemption or deduction for digital tips under current federal tax law.

3. It’s a deduction, not a tax credit.

The $25,000 cash tip allowance is an “above-the-line deduction”—it reduces your taxable income, not your total tax bill. It does not affect Social Security or Medicare taxes, which still apply to tip income.

4. Income limits and sunset clause apply.

The deduction phases out for individuals making over $150,000 or joint filers earning over $300,000. The entire benefit is set to expire at the end of 2028, unless Congress renews it.

What Employers Need to Know

1. Tip reporting requirements have not changed.

Despite the new tax break for employees, employers are still required to track, report, and withhold taxes on all tips—cash and digital alike. That includes collecting employee tip reports (usually monthly via Form 4070) and ensuring tips are included in wage calculations for Social Security and Medicare taxes.

2. Employers don’t determine what’s deductible.

The $25,000 deduction is a personal income tax issue. Employers are not responsible for deciding which tips qualify. Employees must track their own deductible cash tips when filing their taxes.

3. Cash tips still count toward FICA obligations.

Even if employees get a break on their federal income tax, all cash tips over $20/month are still subject to FICA taxes (Social Security and Medicare). Employers must continue to withhold and match these contributions.

4. Encouraging digital tips still makes business sense.

From a practical standpoint, digital tips via apps like Radium Payments make it easier for employers and workers to maintain accurate records, prevent underreporting, and simplify compliance. Plus, many customers prefer digital tipping over carrying cash—especially in hospitality, travel, and service industries.

5. Be proactive about compliance.

With mixed tip sources (cash, card, app), it’s more important than ever for employers to:

• Offer clear reporting guidance to employees

  
  

• Use digital tools to track tips

  
  

• Stay compliant with IRS standards

  
  

• Avoid penalties tied to unreported tip income

Why This Matters — And Why Radium Payments Still Matters More for Digital Tips

If you’re a worker who earns cash tips: this law offers real savings. For customers still tipping in cash or by card directly to a worker, your generosity may now stretch a little further.

But let’s be honest—digital tipping is the future.

Most customers no longer carry cash. In fact, more than 80% of transactions in the U.S. are now digital. That means even with a tax incentive for cash tips, workers and businesses need flexible, digital tipping solutions that match consumer behavior.

That’s where Radium Payments comes in:

• Built for privacy-first, contactless tipping – No public feeds, no data tracking.

  
  

• GPS-based matching – No QR codes, usernames, or phone number swaps.

  
  

• Designed for fast, secure, modern payments – No more awkward wallet fumbling.

  
  

• Complementary to cash – Use cash when possible, but go digital when you need to.

  
  

• Supports proper tax reporting – Keep clean records, stay compliant, and be ready for whatever tax law comes next.

  
  

Final Takeaway

Cash tips get a temporary tax break—a win for traditional tipping. Digital tips via Radium Payments remain taxable, but offer unmatched convenience, privacy, and modern flexibility.

Radium Payments is designed for the long term. We make digital tipping simple, safe, and anonymous—no matter how tax laws change.

In short:

Use cash when it’s available.

Use Radium Payments when it’s not.

Either way, keep tipping generously.