As part of President Donald Trump’s “Big Beautiful Bill,” tipped workers are now able to exclude tips from their taxable income.

This means these workers will be able to keep more of their tips in their pockets. Experts say that ultimately, this might not make as big of an impact as workers would like.

“What is really holding tipped workers back is low wages, not taxes,” said Chris Meyer, a research analyst at the Maryland Center for Economic Policy.

Two separate bills were proposed in the Maryland legislature earlier this year that addressed a statewide No Tax on Tips Act. But both bills died after budget concerns and a lack of appetite to follow up on the issue, according to Meyer.

The state act proposed to gradually increase the state minimum wage of $15, which was established in January of last year, to $20 in 2028. It also proposed to gradually eliminate the tip credit, which allowed employers to count tips toward minimum wage obligations.

Here’s what tipped workers need to know about No Tax on Tips and how it might affect you.

What’s in the federal law?

The federal law, which was included in the recently passed budget, lets tipped workers deduct up to $25,000 in tips from their taxable income.

While it doesn’t apply to Maryland state taxes, it could bring some relief in federal taxes. The state is also still figuring out how this change might impact some aspects of state taxes, but at least for now, workers should file taxes regularly.

“There’s nothing people will need to be preemptively worried about,” said Lucy Smart, director of Tax Education & Training at CASH Campaign of Maryland.

Tipped workers will still be responsible for paying Social Security, Medicare and any other payroll taxes on their tips.

The act is set to expire in 2028 but thinks it will likely be renewed because of its popularity, according to Jessica Lopez, chair of the Maryland Association of CPAs’ State Tax Committee.

Who is included in this?

Workers who “customarily and regularly” receive tips will be able to take advantage of this change, according to the Internal Revenue Service. This is expected to include servers and bartenders, as well as workers at places like salons and hotels.

There’s a phase-out for workers making over $150,000 a year, or $300,000 if filing jointly.

That means over 105,000 tipped workers in Maryland could see a change in their federal tax refunds in the next couple of years.

There’s some uncertainty around what other tipped workers might be included, but the IRS is expected to publish a list in October of which industries are included or excluded. The tax bureau hasn’t said how it’s making this determination.

How much could it save workers in Maryland?

Experts we talked to say it could mean a bit more in workers’ pockets at the end of the year. While this could bring some relief to tipped workers, it might not be a significant amount.

While the law specifies cash tips, experts say that this will also apply to charged tips. That means, if you pay with a credit card and add tips, these tips can be included in the deduction.

To make this even clearer, Lopez gave this example:

Before the federal act, a single taxpayer working as a tipped employee and earning a gross pay of $20,000, including $15,160 in tips, would have a taxable income of $4,250. (That’s gross pay minus the standard, fixed deduction $15,750 for all single taxpayers.)

Because this would enter into the smallest tax bracket, their federal income tax, or what they pay to the IRS, would be 10% of their taxable income, so $425.

Starting this year, tips will be deducted from their taxable income. In this example, that would mean they will not owe any taxes to the IRS and might qualify for a refund.

In some cases, this can mean saving a couple of hundred to thousands of dollars in taxes.

Keep in mind, this is only an example and should not take the place of tax advice.

When will this take effect?

The federal No Tax on Tips Act will go into effect in 2025. While updated IRS withholding tables aren’t out yet, it will most likely mean refunds for taxes withheld or reductions in taxes withheld in the first half of 2025.

Businesses and individuals should document and track tips as much as possible in case of an audit, said Lopez. The IRS says workers should keep a daily record of tips and must report tips on their income tax return.

Experts say the state laws likely won’t come up again in the near future.

How will this affect federal benefits?

The No Tax on Tips Act comes with a bit of a caveat, as the extra take-home money might make some workers ineligible for federal benefits like Medicaid and SNAP. These programs are based on monthly income, and an increase might push workers over the eligibility requirements.

What are wage advocates saying?

Angelo Greco, spokesperson for the One Fair Wage Coalition, said the solution lies in increasing wages, not giving tax breaks.

“No tax on tips is a great slogan, but it only applies to a few,” said Greco, adding that while it might bring relief to some workers, it won’t be much help to a lot of them.