Digital Content Creators Seek to Benefit from “No Tax on Tips”

As digital content creation evolves from a side hustle to a serious profession, social media personalities can now look to federal tax law for their next big break.

“No Tax on Tips” is a new federal income tax deduction available to individuals “that customarily and regularly” receive tips. This includes workers in jobs where tipping is a standard part of compensation (bartenders, food service employees, hospitality workers, babysitters, cosmetologists, etc.), as well as a surprising new class of individuals: digital content creators.

Creators who make less than $150,000 (or $300,000 if filing jointly) in annual gross income will be able to deduct up to $25,000 per year in “qualified tips” from their federal income taxes through December 31, 2028. This tax benefit is particularly advantageous for smaller creators, allowing them to hold on to more of their earnings as they work to grow their brands.

Despite digital content creation being a relatively new career path, over 39 million people in the U.S. identify as content creators. Creators on platforms like Instagram, Snapchat, TikTok, YouTube, and Twitch are earning income in a variety of ways, including through advertising revenue on regular content and fees received from optional subscriptions that give fans access premium or exclusive content.

More recently, social media has evolved to allow fans to financially reward their favorite creators through in-app tipping features, as well as links to external payment services like PayPal, Venmo, or Cash App. A 2024 study, available here, found that more than a quarter of “large” U.S.-based influencers (i.e., those with 100,000 or more followers) reported receiving tips, with another report, linked here, indicating that tipping and gifting make up almost 40% of total creator revenue.

Including creators in the eligible group for the “No Tax on Tips” deduction recognizes the growing economic significance of digital content creation and represents a huge step toward legitimizing this non-traditional career opportunity.

“No Tax on Tips” is part of President Donald Trump’s recently enacted One Big Beautiful Bill Act (“OBBA”), the full text of which is available here. The IRS continues to release guidance on this new provision, including, most recently, a proposed regulation detailing the occupations eligible for the deduction and clarifying what counts as “qualified tips.” The IRS will receive comments on the proposed rule until October 23, 2025, and may thereafter make changes to eligible occupations and the definition of “qualified tips.” SMGG is closely monitoring developments on this topic.

In the meantime, creators should be sure to appropriately document income received from virtual tips in order to comply with existing income reporting requirements and to ensure that a deduction, if applicable, can be claimed. Appropriate documentation includes keeping a detailed record of the date the tip was received; the source of the tip (e.g., the specific platform or external payment service); and the tip amount, along with other relevant details. Tipping income should be kept separate from other types of earnings like advertising revenue, brand deals, or merchandise sales.

For further information on this topic and legal issues affecting content creators, please reach out to Vivi Besteman at vbesteman@smgglaw.com or Natasha Patel at npatel@smgglaw.com.

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