How Does the One Big Beautiful Bill Impact Tip Taxation?
The recently enacted One Big Beautiful Bill Act (“BBB Act”) shifts how tips are taxed at the federal level. Prior to the BBB Act, all tips were considered income subject to tax. This meant that employers had to report all tip income received by employees for federal income, Social Security, and Medicare tax purposes. Nothing in the BBB Act changes this. Despite a section of the BBB Act titled “No Tax on Tips,” from the employer’s perspective, tip income is still subject to tracking, reporting, and withholding, although tip reporting will change, as discussed below. Further, employers operating large food or beverage establishments, generally defined as those employing more than ten employees on a typical business day during the preceding calendar year, must file Form 8027 with the IRS. One purpose of Form 8027 is to determine allocated tips for tipped employees. Generally, food and beverage employers must allocate tips among employees who receive them if these employees don’t collectively report tip income to the employer during any payroll period totaling at least 8% of the employer’s gross receipts from food and beverage sales for that period. The allocated tip income is the difference between the total tips reported by employees and the 8% of gross receipts from food and beverage sales. Again, nothing in the BBB Act changes this. Rather than changing how employers report and withhold on tips, the BBB Act changes how tips are taxed via changes to individuals’ tax forms. The BBB Act creates a deduction that allows tipped workers to deduct up to $25,000 in “qualified tips” income annually from their federal taxable income. “Qualified tips” are cash tips received by an individual in an occupation which customarily and regularly receives tips. This includes tips charged on a credit card and tips received from a tip sharing arrangement. Notably, “qualified tips” exclude tips received in any non-cash or non-credit form and income from service charges, mandatory gratuities, and any other form of involuntary charge, even if such amounts are distributed as tips to employees. The deduction is available for both itemizing and non-itemizing taxpayers, applies to tax years 2025 through 2028 and begins to phase out for individuals with modified adjusted gross income of more than $150,000 or joint filers earning more than $300,000. If income exceeds these thresholds, the deduction will be reduced by $100 for each $1,000 over the applicable threshold. Although tipped workers may deduct up to $25,000 from their federal income taxes, the deduction does not apply to Social Security or Medicare taxes. To be eligible to receive the deduction, individuals must include their Social Security number on their tax return…
The Chili’s Economy is Here: What’s Behind the Casual-Dining Boom
How some restaurant chains are defying the consumer gloom playing out in fast food. Restaurant executives sound like they’re operating on different planets these days. In the fast-food and slightly higher-end fast-casual world, caution is the mood. Cava CAVA -0.31%decrease; red down pointing triangle and Chipotle CMG 0.63%increase; green up pointing triangle missed Wall Street forecasts and warned that customers are getting more price sensitive. McDonald’s MCD 1.27%increase; green up pointing triangle is seeing double-digit traffic declines among its lowest-income diners, while Wendy’s WEN -0.79%decrease; red down pointing triangle also says budget-conscious customers are pulling back. Meanwhile at sit-down casual-dining chains, the tone is more optimistic. Chili’s has become the poster child for the group, reporting a 24% jump in U.S. same-store sales last quarter compared with a year earlier. Over the past three years, shares of Chili’s owner Brinker International EAT 1.38%increase; green up pointing triangle have returned over 300%.
Over at Olive Garden, Darden Restaurants DRI 1.94%increase; green up pointing triangle Chief Executive Officer Ricardo Cardenas told analysts the chain is winning “wallet share from fast food and fast casual.” Cheesecake Factory CAKE 1.40%increase; green up pointing triangle CEO David Overton said customers still want special-occasion nights out—and his brand is well placed to keep gaining share. Cheesecake Factory stock has returned about 70% over the past 12 months, while Darden has delivered gains of about 45%. That easily outpaces chains like McDonald’s, Chipotle and Wendy’s. This isn’t exactly how many on Wall Street would have expected things to go. In a strained economy with inflation eating into spending power, Americans usually trade sit-down dinners for cheaper drive-through fare. But so far, something close to the opposite seems to be happening…
Bielat Santore & Company – Restaurant Industry Alert
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Catering, Couriers, and the Tax-Free Tip Boom
What restaurants need to know now. Recent federal legislation eliminating taxes on tips for gig workers has fundamentally shifted the economics of delivery. While this change might seem like a simple policy adjustment, it’s creating ripple effects throughout the restaurant delivery ecosystem that smart operators need to understand and prepare for now. For restaurants, especially those with substantial catering operations, this isn’t just a policy footnote. It’s a fundamental change in how drivers evaluate and prioritize deliveries, with high-value catering orders becoming increasingly attractive while smaller orders may struggle to find reliable fulfillment. The math is straightforward: when tips make up roughly 50% of a driver’s earnings (according to Gridwise data), removing federal taxes from that income represents a significant boost in take-home pay. For catering deliveries, where gratuities often average $43 per order at 12% (ezCater data), drivers are now looking at substantially higher net earnings — and they’re making delivery decisions accordingly. Gig drivers have always been selective about which deliveries they accept, often basing decisions on visible tip amounts through platforms like Uber Eats, where drivers see “expected payout” including gratuities before accepting an order. With tips now tax-free, that $43 average catering tip translates to significantly more take-home income than before. This creates a clear hierarchy in the delivery ecosystem. Food delivery already had the highest percentage of pay composed of tips compared to other gig work — 53.4% according to recent Gridwise data, compared to just 10.4% for rideshare. Now, within food delivery itself, catering orders are becoming the premium tier that drivers actively seek out. The reasons extend beyond just tip amounts. Catering deliveries offer several advantages that make them increasingly attractive to quality drivers:
- Larger, predictable tips that are now completely tax-free
- More predictable routes and timing, allowing drivers to plan their day efficiently
- Lower risk of problematic customer interactions compared to residential deliveries
- Professional delivery environments with clear pickup and drop-off procedures
The inevitable result? High-quality drivers are gravitating toward catering work, while lower-value orders may face longer wait times, higher rejection rates, or assignment to less experienced drivers. The Restaurant Perspective: A Tipping Strategy is No Longer Optional…
Wary Diners Shun Restaurants
Raising prospect of boost for retailers. Cash-conscious consumers choosing to eat in rather than dine out have raised the prospect of an upturn in earnings for supermarkets and food delivery firms, according to data, analysts, and company executives. U.S. President Donald Trump’s tariff policies have added to economic uncertainty, increased the likelihood of stubborn inflation, and made consumers question whether restaurants are worth the expense. “I eat much more at home because first of all eating out is way more expensive lately, and quality is not always guaranteed,” Marilena Graziano, a Florence-based teacher, told Reuters. Dutch retailer Ahold Delhaize (AD.AS), opens new tab, owner of the Food Lion and Giant stores in the United States, said earlier this month that it was increasing its offers tailored to low-cost eating in. “We have solutions for customers to have a very affordable meal of $2.50 per person at home with the family,” Ahold’s CEO Frans Muller said in an interview this month. “We have increased a lot of that proposition in our stores.” The shift hints at a revival of the boom in eating at home during the COVID-19 pandemic when people could not go out. Home delivery companies such as Just Eat.com made record sales, although they struggled once lockdown restrictions were lifted.
Figures from Rabobank and Eurostat show that food retail sales volumes adjusted for inflation in supermarkets, hypermarkets and similar stores grew by 1.5% in the Eurozone between January and May this year. That compares with 0.1% growth over the same period last year.
For food and beverage services, such as restaurants and bars, the metric fell by 0.3%. Last year’s growth was flat at 0%. The inflation-adjusted figures suggest that sales at supermarkets are recovering faster than at restaurants, especially for routine weekday meals, Rabobank’s consumer foods sector analyst Maria Castroviejo told Reuters. Castroviejo cited the rising popularity of grab-and-go meals, salads, wraps, and sandwiches. “This offer has increased and improved a lot and we know that this is taking away some demands from certain foodservice players,” she said. Delivery Hero (DHER.DE), opens new tab, which owns Glovo and Foodpanda, said that consumers go out less during times of economic hardship, but will order in as a cheaper alternative. A survey of more than 5,000 U.S. adults commissioned by Hellofresh (HFGG.DE), opens new tab, a German meal-kit maker that makes most of its revenue in North America, showed 93% of them expect to cook as much as last year or more in the next year…
How Development Opportunities Can Drive Retention in the Restaurant Industry
Keeping good people is often more cost-effective than finding new ones. The summer months are typically a time of high turnover for all employers, but particularly in restaurants. Leisure and hospitality experience a summer turnover rate of 5.04 percent according to recent analysis by ADP Research published in Today at Work 2025, Issue 2. Out of 13 industries analyzed, this was the highest summer turnover rate. In the non-summer months, ADP Research found the leisure and hospitality turnover rate is 4.28 percent, the second highest by industry trailing only retail. Restaurants often rely heavily on part-time, younger, and lower-wage workers, all of whom ADP Research found to be the most prone to turnover. Increasing retention in the restaurant business can come from a variety of talent strategies, including career and skills development. According to ADP Research, workers who feel strongly their employer is providing the training they need are nearly six times more likely than others to recommend their company as a great place to work. Moreover, workers who are confident in their skills and believe their employer is investing in them are twice as likely to say they have no intention of leaving their organization compared to workers who have the skills but lack training opportunities. For many restaurant employees, staying with an employer isn’t just about pay or perks—it’s about progress. When people feel like they’re growing and gaining new skills—and that there’s a future with the organization—they’re far more likely to stick around. Even in hospitality where advancement paths can be limited, there are many ways leaders can grow and develop staff. Development doesn’t have to mean a change in job title or compensation. It can be stretch assignments, lateral moves, or learning new things that make the work more meaningful. Restaurant leaders who invest in even small-scale development can see improved morale, better performance, and lower attrition even during peak seasons. Development can take many forms. Consider a line cook learning expeditor (expo) responsibilities, or a host cross-training in event coordination. These “side-of-the-desk” experiences not only build new skills but also show employees that they’re trusted and valued and leadership sees potential in them. Restaurants can also implement rotational roles or short-term projects. Examples could include…
Stop Hiring the Wrong People
Five important traits managers often overlook. Let’s face it, hiring restaurant staff has always been challenging, but in today’s job market, finding the right employee can be like searching for a needle in a haystack. When interviewing potential employees, there are several factors to consider, including availability and work experience. There are, however, several traits that hiring managers tend to overlook, which can lead to high turnover rates, increased costs, and a potentially poor work environment. Here is a list of unique qualities I tell every restaurant manager to look out for when hiring new staff. Creative Thinking. This is the most overlooked trait when interviewing candidates. Employers tend to forget that in this industry, there’s often not a formula for when things go wrong. You need to have people on your team who know how to navigate around problems to keep operations running smoothly and guests satisfied. Emergencies happen at restaurants all the time, yet so many owners don’t screen a candidate’s ability to think on their feet in a high-pressure situation. They hire them because they are available, then let them sink or swim. Figure out if they can think creatively and adapt quickly before you hire them. During the interview, present them with a situation and see how they answer. If someone who made reservations orders a tri-tip steak and it’s out of stock, how would they solve it? Would they offer a different cut? Would they give them a certificate to come back? Or would they just say we’re all out of that? Do the same exercise for back-of-house positions. If a fryer is down, how would they rearrange to keep things moving smoothly? The way they respond will give you great insight into how they’ll be able to problem-solve on the job creatively.
What’s the ‘Invisible Income’ Problem?
What are the new W-2 requirements restaurant operators need to be aware of? New W-2 reporting requirements and increased scrutiny on tip income are creating a data crisis for restaurants. While operators are aware tips and overtime are subject to FICA and often local/state taxes, many legacy payroll systems can’t handle this more complex tax logic in real time. Elizabeth Oviedo, CEO of Symmetry, highlights the “invisible income” problem, and what best practices operators should put in place. Restaurant operators must be vigilant about new W-2 requirements for tip income, as the IRS is scrutinizing proper reporting of all compensation, including cash and non-cash tips, and distinguishing service charges from tips.. With the rise of digital payment methods, operators need to ensure their payroll systems can accurately capture and report tips received through credit card and app-based transactions, as well as distributed tips among employees. The IRS is also pushing for greater transparency in reporting fringe benefits, which, while not always directly related to tips, can sometimes be intertwined with employee compensation in the restaurant industry. The “invisible income” problem in restaurants refers to unreported cash tips, which differ from credit card tips tracked by POS systems. This underreporting creates significant issues for restaurant operators. Firstly, it poses a tax compliance risk, as the IRS may audit businesses if reported tip income doesn’t align with gross receipts, potentially leading to penalties. Secondly, it causes payroll discrepancies, impacting FICA tax calculations for both employer and employee. Lastly, underreported tips can obscure minimum wage shortfalls for tipped employees, for which the employer is responsible. Beyond the operator, underreported tips also negatively impact employees. Their future Social Security benefits and Medicare eligibility can be affected as their true income isn’t accurately reflected. Furthermore, securing loans, such as mortgages, becomes more challenging when their actual earnings are not fully documented…
Did You Know?
Wholesale food prices spiked last month. Wholesale food prices jumped 1.4% last month after largely remaining flat or falling for much of the year, according to new federal data on Thursday, reigniting concerns that another bout of inflation could hamper the economy in the short term. The producer price index increased 0.9% month-over-month in July, and 3.3% for the year, far higher than had been expected, according to U.S. Bureau of Labor Statistics. Food costs were particularly high and are now up 4.2% over the past year. Wholesale food prices had been either flat or down each of the previous four months…
Employee Tip
How to Be a Better Restaurant Manager When You’re Stuck in the Middle. The middle manager’s guide to leadership when you’re caught between corporate and the frontline—and why mastering coaching from the middle is the missing link in restaurant performance. You’re not the boss. But you’re definitely not just another team member. You’re in the middle. And when corporate rolls out a last-minute initiative while your team is already drowning in Friday dinner rush, guess who catches the fallout? You do. Middle managers in restaurants and hospitality are uniquely pressured to translate directives, motivate teams, and deliver results. Often, they do so without a voice in decisions. You balance expectations from above and below and are expected to lead with calm, clarity, and consistency. Mastering coaching from the middle is the most overlooked key to effective hospitality leadership. Let’s break down what this looks like in your daily challenges…
