The “No Tax on Tips” deduction, known as the Qualified Tip Deduction, was introduced through One Big Beautiful BIll Act (OBBBA). This deduction allows employees and self-employed individuals to deduct up to $25,000 in qualified tips received during the year, per tax return. It is available to qualifying taxpayers regardless of whether they itemize deductions or use the standard deduction. However, it starts to phase out for individuals with incomes exceeding $150,000, or $300,000 for those filing jointly. And the deduction is restricted to tips earned from occupations that customarily received tips prior to Jan. 1, 2025.
The Treasury Department and IRS have released proposed regulations that specify which occupations customarily and regularly received tips prior to 2025, potentially qualifying them for the deduction. They also clarify the meaning of “qualified tips” and outline additional requirements taxpayers must meet to claim the deduction.
The proposed regulations list almost 70 separate occupations of tipped workers. The “List of Occupations that Receive Tips” will be using a new classification system developed by the Treasury Department and the IRS specifically for this purpose. Each occupation on the list will be assigned a unique three-digit identifier known as a “Treasury Tipped Occupation Code” (TTOC), and these occupations will be grouped under broader occupational categories.
Here are the eight categories in the proposed regulations:
100s – Beverage and Food Service
200s – Entertainment and Events
300s – Hospitality and Guest Services
400s – Home Services
500s – Personal Services
600s – Personal Appearance and Wellness
700s – Recreation and Instruction
800s – Transportation and Delivery
The proposed occupations are listed below. They are broken down by category and include the 3 digit TTOC.
Beverage & Food Service
101: Bartenders
102: Wait Staff
103: Food Servers, Nonrestaurant
104: Dining Room and Cafeteria Attendants and Bartender Helpers
105: Chefs and Cooks
106: Food Preparation Workers
107: Fast Food and Counter Workers
108: Dishwashers
109: Host Staff, Restaurant, Lounge, and Coffee Shop
110: Bakers
Entertainment & Events
201: Gambling Dealers
202: Gambling Change Persons and Booth Cashiers
203: Gambling Cage Workers
204: Gambling and Sports Book Writers and Runners
205: Dancers
206: Musicians and Singers
207: Disc Jockeys, Except Radio
208: Entertainers and Performers
209: Digital Content Creators
210: Ushers, Lobby Attendants, and Ticket Takers
211: Locker Room, Coatroom, and Dressing Room Attendants
Hospitality & Guest Services
301: Baggage Porters and Bellhops
302: Concierges
303: Hotel, Motel, and Resort Desk Clerks
304: Maids and Housekeeping Cleaners
Home services
401: Home Maintenance and Repair Workers
402: Home Landscaping and Groundskeeping Workers
403: Home Electricians
404: Home Plumbers
405: Home Heating and Air Conditioning Mechanics and Installers
406: Home Appliance Installers and Repairers
407: Home Cleaning Service Workers
408: Locksmiths
409: Roadside Assistance Workers
Personal Services
501: Personal Care and Service Workers
502: Private Event Planners
503: Private Event and Portrait Photographers
504: Private Event Videographers
505: Event Officiants
506: Pet Caretakers
507: Tutors
508: Nannies and Babysitters
Personal Appearance & Wellness
601: Skincare Specialists
602: Massage Therapists
603: Barbers, Hairdressers, Hairstylists, and Cosmetologists
604: Shampooers
605: Manicurists and Pedicurists
606: Makeup Artists
607: Exercise Trainers and Group Fitness Instructors
608: Tattoo Artists and Piercers
609: Tailors
610: Shoe and Leather Workers and Repairers
611: Eyebrow Threading and Waxing Technicians
Recreation & Instruction
701: Golf Caddies
702: Self-Enrichment Teachers
703: Sports and Recreation Instructors
704: Tour Guides
705: Travel Guides
706: Recreational and Tour Pilots
Transportation & Delivery
801: Parking and Valet Attendants
802: Taxi and Rideshare Drivers and Chauffeurs
803: Shuttle Drivers
804: Goods Delivery People
805: Personal Vehicle and Equipment Cleaners
806: Private and Charter Bus Drivers
807: Water Taxi Operators and Charter Boat Workers
808: Rickshaw, Pedicab, and Carriage Drivers
809: Home Movers
To claim the deduction, a worker must also meet certain criteria:
They must work in an occupation listed by the Treasury Department and IRS,
They must receive qualified tips
They must have an SSN valid for work
If they are married, they must file a joint return with their spouse
The proposed regulations define what constitutes qualified tips, based on several factors including form of payment, source of tips, and voluntarily payment:
Form of Payment: Qualified tips must be paid in cash or a cash-equivalent medium, such as checks, credit/debit cards, gift cards, tangible or intangible tokens that can be readily exchanged for a fixed cash amount, or other electronic payment methods (excluding most digital assets) denominated in cash.
Source of Tips: Tips must come directly from customers or, for employees, through a mandatory or voluntary tip-sharing arrangement like a tip pool.
Voluntarily Paid: Tips must be given voluntarily by the customer and not subject to negotiation. Certain service charges do not qualify. For example, if a restaurant automatically adds an 18% service charge for large parties and distributes it to staff, and the customer has no option to modify or decline it, those distributed amounts are not considered qualified tips.
The proposed regulations also define what are considered non-qualified tips:
Illegal Activity: Any amounts received in connection with illegal activities, prostitution, or pornographic services are not considered qualified tips.
Mandatory charges: Service charges, automatic gratuities, or other mandatory amounts added to a bill by the establishment, unless the customer can disregard or modify the amount.
Received in a specified service trade or business: Tips received by self-employed individuals or employees working for an employer in a specified service trade or business (as defined in section 199A(d)(2) of the Code) are not qualified tips.
Received for illegal services: Any amount received for a service that is a felony or misdemeanor under applicable law is not a qualified tip.
Received by owners or employees of the payor: If the tip recipient has an ownership interest in or is employed by the payor, the tip is not qualified.
Paid in non-cash mediums: Tips paid in event tickets, meals, services, or other assets not exchangeable for a fixed amount in cash (such as most digital assets) are not qualified tips.
The changes found in the OBBBA will no doubt keep anyone doing tax returns going forward a lot of studying while we wait for the final regulations and changes to the tax forms to be revealed.
