President Trump’s “One Big Beautiful Bill Act” (OBBBA), which was signed into law in July, includes a sweeping new tax break that can affect anyone who rides in a taxi, limo, or app-hail vehicle, according to Matthew W. Daus, former NYC Taxi & Limousine Commissioner and Chair of the Transportation Law Practice at the Windels Marx law firm. At the heart of the law is a new federal tax break on tips and overtime pay, which will reshape how drivers earn, and how passengers support them, Daus noted.
The U.S. Treasury Department and the Internal Revenue Service (IRS) have released proposed rules clarifying how the “no tax on tips” provision will function. From 2025 through 2028, drivers in certain tipped occupations – including taxi, app-hail, limousine, shuttle, and tour bus drivers – can deduct up to $25,000 per year in qualified tips from their taxable income. Absent from the list are public transit bus drivers, intercity bus operators, and school bus drivers – since those occupations rarely receive gratuities and are often prohibited from accepting them.
Drivers can also deduct the extra “half” portion of their overtime premium (the “time-and-a-half” rate required by the Fair Labor Standards Act), up to $12,500 per year or $25,000 for joint filers. Only properly-reported, voluntary tips qualify for the new tax break, which means cash and credit card gratuities count, but automatic service charges do not.
Starting in 2025, employers will be required to list tips separately on workers’ W-2 forms and assign each employee a “Tipped Occupation Code” to confirm their eligibility, while independent contractors may be required to self-report.
For companies that employ drivers, the immediate priority is compliance: updating payroll systems to properly track and report tips and overtime beginning with 2025 returns. Companies that impose automatic gratuities may also want to reconsider their policies, as those payments will not qualify for the deduction.
Source: amNY
