Tax Return Changes for Restaurants and Bars | HelloBooks Restaurant and bar clients face tip reporting, tipped occupation codes, overtime tracking and new deductions for their staff. A CPA checklist.
Restaurants sit at the centre of the tips and overtime changes. The owner has new payroll reporting duties, and the staff can claim deductions that depend on what the owner reports.
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Staff tips deduction, up to
$25,000 a year
Applies: 2025 to 2028 deductions; 2026 reportingFrom IRS.gov · checked October 10, 2026
Servers, bartenders and other tipped staff can deduct qualified tips up to $25,000 a year, and hourly staff can deduct the overtime premium. For 2026, the employer must report tips, the tipped occupation code and qualified overtime separately, because the 2025 penalty relief has ended.
Mandatory service charges are not qualified tips. An automatic gratuity for large parties that guests cannot change does not help staff with the deduction.
Record card tips owed to staff as a liability until paid out, not as sales, and keep service charges in their own revenue account. With bank feeds in HelloBooks, daily card settlements arrive automatically and the AI suggests a category for each, with uncertain items held in a review queue for you.
The plain-English summary for business owners
Payroll and information returns · tipped occupations
Payroll and information returns · 2026
Schedule 1-A · qualified tips
General information for tax professionals, not advice on a specific return. Figures are from IRS.gov on the date shown; check the current IRS instructions before filing.
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