Why You Should Report Your Tips

Not all massage therapists accept tips. We are a health-care profession, after all, and most health-care professionals don’t accept tips. If my general practitioner offered me a tip screen upon checkout, I’d be pretty confused.

But many massage therapists still accept tips, particularly those working for franchises. While it may be easy for some to see tips as a tax-exempt gift or a “thank-you” for excellent service, it’s important to remember that the Internal Revenue Service (IRS) does not share that viewpoint. 

In fact, the US government has treated tips as taxable income for more than 60 years. In 1963, the Internal Revenue Code (IRC) started requiring Americans to pay taxes on tips just like any other source of revenue.¹ That said, it’s been easy to fall into the habit of pocketing cash tips without claiming them on your taxes. But there are several reasons why that’s a bad idea, including tips being exempt from taxes (up to a point). 

Report Your TIPs Because . . .

Here are four reasons to report tips on your taxes.

1. It’s the Law

The first, and most obvious, reason is that the IRS requires it. If you get audited and are caught with unreported income, you could face consequences for dodging those taxes.² In a time when taxpayers are under increased scrutiny to ensure they’re paying their fair share, we don’t want to see any of our members get dinged for doing what they see other tipped professions do. Report all your tips, including cash, as income on your tax returns.

2. Invest in Your Future

Another important reason for you to report every tip is to bolster your future Social Security benefits. Social Security benefits start in full at age 67 to supplement your retirement.³ The amount you receive is based on your top 35 earning years while you work. The money comes from your taxes, so if you are paying the lowest amount you can by not remitting tax on your tips, your social security payout will be lower. Paying more in taxes now may feel like a loss, but by the time you’re ready to retire, you’ll be glad you did it. Taxes paid today are an investment in tomorrow. 

3. Tips Are Now Exempt from Taxation

As of last year, most massage therapists (and folks in other tipped professions) have a reprieve from paying taxes on their tips.⁴ Beginning with the 2026 filing period, up to $25,000 in tip revenue can be deducted from your taxes. This deduction is temporary. Currently, it’s scheduled to phase out after 2028, but that could change if lawmakers decide to extend the deduction or make it permanent. So, if you were holding out on reporting your tips to the IRS to save a few bucks, the pressure is off! You can report those tips without having to pay taxes on up to $25,000 of it to Uncle Sam. There are some exceptions to this new deduction, so remember you should clear everything with your certified tax professional before filing your taxes.

4. Protect Funding for Massage Therapy Schools

The newest incentive to declare all your tips on your taxes comes on the heels of a particularly grueling rulemaking session from the US Department of Education (ED). If you’ve been reading your ABMP Government Relations emails, you know about the most recent updates to the Do No Harm rules from ED. In short, the federal government is using revenue data to determine if individuals who pursued higher education are financially better off than they would have been had they entered the workforce with only a high school degree. This means that if a large portion of our profession is underreporting their income by not claiming tips on their taxes, it looks to the federal government like massage therapists are not making more than they would have without completing a massage therapy program. Failing that earnings test puts massage therapy programs on the chopping block for federal student aid eligibility. In fact, it’s estimated that this formula could cause 89 percent of massage therapy programs to fail the earnings test and then lose eligibility for Title IV funding for their students.⁵ 

A Second Chance

At the end of June, massage schools were granted a brief reprieve. After a flood of public comments decrying the many flaws in the earnings formula, ED decided to give programs related to tipped professions, including massage therapy, a one-year delay in the implementation of this new rule.⁶ This will allow the IRS to collect more accurate earnings data from folks like you. The hope is that this new, more accurate earnings data will show that massage therapists do indeed make more than individuals working with only a high school degree. 

If that happens, massage programs will have a second chance to pass the test and remain eligible for Title IV funds for their students. The viability of countless massage therapy programs across the country relies on accurate earnings data to be reported by practicing massage therapists.

What Now?

ABMP (and massage schools and students across the country) would love massage professionals to make sure they’re reporting all their tips, including cash, in their 2026 taxes. Disclosing your full income doesn’t just benefit the profession, students, and schools; it also makes your life easier by protecting you from a tax audit and helping you provide for your retirement. And to top it all off, it likely won’t even be taxed. Seems like a no-brainer to us. 

Notes

1. Internal Revenue Service, “Tip Recordkeeping and Reporting,” accessed July 2026.
2. Internal Revenue Service, “20.1.2 Failure to File/Failure to Pay Penalties,” accessed July 2026.
3. Social Security Administration, “Understanding the Benefits,” accessed July 2026.
4. Internal Revenue Service, “Treasury, IRS Provide Guidance for Individuals Who Received Tips or Overtime During Tax Year 2025,” accessed July 2026.
5. Preston Cooper, American Enterprise Institute, “Low-Earning Degrees Will Soon Lose Access to Federal Loans—Is Yours on the List?”, accessed July 2026.
6. US Department of Education, “US Department of Education Issues Final Rule to Hold All Colleges and Universities Accountable for Low-Earning Programs,” accessed June 2026.