Source: Finance.yahoo.com
USA – (Bloomberg) — Katherine Green, a dominatrix who creates online adult videos, wasn’t expecting a windfall from President Donald Trump’s signature push to make tips tax-free.
But the Houston-based OnlyFans Ltd. creator, who goes by the title Mistress professionally, had her hopes raised when the Trump administration issued guidance last week including digital content creators like Green among the job categories eligible for the break, along with dancers, waitresses and golf caddies.
“It’s really exciting news. It was a surprise,” Green said Tuesday, adding she hoped to get “a decent-sized tax break.”
Yet Green and other creators of online adult content could ultimately be excluded.
Late Wednesday, after Bloomberg published a story about influencers who were potential beneficiaries, Treasury’s Assistant Secretary of Tax Policy Ken Kies said in a statement the department would issue further guidance in the coming weeks declaring ineligible tips collected in connection with “illegal activity, prostitution or pornography.”
The Treasury Department did not respond to an earlier request for comment. In earlier guidelines outlining which jobs qualify for no-tax-on-tips, the department said it anticipated formal guidance would be “substantially the same” as the preliminary list.
The inclusion of online content creators, such as podcasters and social media influencers, promises to sweeten the allure of internet fame and marks the rising prominence of a new class of performers. It also helps the Trump administration cultivate a group that both political parties want to leverage to reach new audiences and energize voters.
More than a quarter of large US-based influencers — those with at least 100,000 followers — reported earning tips, according to a 2024 study by the Creative Class Group. The new tax law could restructure compensation in an emerging industry to draw even more heavily on gratuities.
“I see this as a way of appearing friendly to a group of people the administration probably would like to have a relationship with,” said Jeffrey Harden, a political science professor at the University of Notre Dame.
Trump and his Democratic rival Kamala Harris embraced digital content creators during the 2024 presidential election. Both presidential candidates went on popular podcasts to broadcast their message, and each party’s convention granted media credentials to online influencers.
Since the election, the Trump administration has paraded digital content creators through the White House briefing room with a dedicated “new media” seat. Democrats are also spending big to find online voices, who can appeal to voters.
Tips Increasing
Daniel Abas, president and founder of the Creators Guild of America, a nonprofit representing digital content creators, said the tax break will “have a very strong economic impact for creators, particularly earlier in their careers.”
The vast majority of creators make less than the $150,000 income cap at which the tax break begins to phase out, according to the Creative Class Group study. Creators making up to $400,000 a year could claim some portion of the deduction.
Even before the new tax law, tipping was taking on a more important role in online performers’ compensation. Digital content creators reported a 40% increase in tips in 2024 compared to the previous year, according to a report by eMarketer Inc.
Adult content creators operating online through platforms such as OnlyFans initially appeared to be among the biggest beneficiaries since they are particularly reliant on tips, Abas said.
Green, who is active on several platforms in addition to OnlyFans, said tips are a big part of her income. She is already working with her accountant, Katherine Studley, to navigate the law, which Trump signed in July.
Studley, who specializes in tax preparation for OnlyFans creators, said excluding adult content creators would create challenges since the platform also includes performers that aren’t engaged in adult content.
Tax policy analysts and lawyers interviewed before the Wednesday evening Treasury statement said nothing in the initial guidance suggested adult performers would be excluded. Studley cited the inclusion of dancers on the list of job categories eligible for the tip income deduction.
“‘Customarily tipped,’ which would mean a stripper not a Rockette,” Studley said.
Swelling Cost
Extending the tipped income tax break to digital content creators could raise regulatory questions and potentially swell the cost of the four-year tax cut beyond the $32 billion estimated when Congress passed the law, policy and legal experts said.
The tax break allows qualified taxpayers to deduct up to $25,000 in tips a year from their tax bills.
Defining a tip in the digital creative space could be complicated, said Alex Muresianu, a senior policy analyst at the Tax Foundation.
Currently, a tip is a voluntary and optional payment a customer makes in addition to the cost of the goods or services provided. If creators provide any additional content or benefits to subscribers, that subscription cost would not fit the current definition of a tip. Some influencers may be tempted to categorize payments as tips that in reality don’t fit the bill or restructure their pay to take advantage of the tax break, Muresianu said.
“I think that will be a thorny issue with implementation,” he said. “The tax structure could reshape compensation substantially in those areas that could lead to reshaping of behavior and also a higher fiscal cost.”
Michael Chittenden, an attorney at Covington & Burling LLP, said the tax break could reshape how some influencers structure their compensation, but the effect would likely be tempered by the temporary nature of the tax cut, which expires after 2028, and the income cap.
“You’re not going to have, in general, people with access to the most high-dollar, sophisticated tax planning available to them to do this. But I think ideas will percolate in the creator community,” he said. “People respond to tax incentives, as a general rule.”
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