The IRS released proposed regs implementing the “no tax on tips” provision of the One Big Beautiful Bill (OBBBA), outlining eligibility for nearly 70 occupations that customarily received tips as of December 31, 2024, and inviting public comments ahead of a scheduled rulemaking hearing. (IR 2025-92; NPRM for REG-110032-25, 9/19/2025)
Background
The OBBBA, enacted on July 4, 2025, added IRC § 224 which establishes a temporary income tax deduction for “qualified tips” received by individuals in occupations that customarily and regularly received tips on or before December 31, 2024.
The deduction is limited to $25,000 per year and is subject to a phase-out for taxpayers with modified adjusted gross income above $150,000 ($300,000 for joint filers). Note that the deduction is not available for married individuals filing separately. This benefit will no longer be available for tax years beginning after December 31, 2028.
The statute excludes tips received in specified service trades or businesses, as defined in IRC § 199A(d)(2).
A preliminary list released earlier in September served as initial guidance on eligible occupations while Treasury and IRS drafted formal regs. The list included nearly 70 occupations that customarily and regularly received tips as of December 31, 2024.
These occupations are organized into the following categories:
- Beverage and Food Service,
- Entertainment and Events,
- Hospitality and Guest Services,
- Home Services,
- Personal Services,
- Personal Appearance and Wellness,
- Recreation and Instruction, and
- Transportation and Delivery.
Examples include bartenders, wait staff, gambling dealers, concierges, home maintenance workers, personal care workers, fitness instructors, golf caddies, taxi drivers, and delivery personnel.
Occupation descriptions may differ from standard occupational codes to accurately reflect tipping practices as of the cutoff date.
Proposed Regs
The proposed regulations define “qualified tips” as cash tips voluntarily paid by customers, including those paid by cash, check, card, or other cash-equivalent means, and tips received through tip-sharing arrangements.
Service charges and mandatory gratuities are generally excluded unless the customer can expressly disregard or modify them.
In an accompanying release, the IRS gave the example of a restaurant that “imposes an automatic 18% service charge for large parties and distributes that amount to waiters, bussers and kitchen staff.” According to the proposed rules, “if the charge is added with no option for the customer to disregard or modify it, the amounts distributed to the workers from it are not qualified tips.”
Qualified tips must be properly reported on specified IRS forms such as Forms W-2, 1099-NEC, 1099-K, 1099-MISC, and Form 4137.
Employees participating in IRS tip reporting programs may use established tip rates for the deduction. The regs clarify that amounts received for illegal activity, prostitution services, or pornographic activity do not qualify.
On a press call September 18, Treasury officials said that in order to claim the deduction, a taxpayer must include their Social Security number on their tax return.
Anticipated future guidance – which the officials said to expect soon – will cover how individuals determine tips that qualify for 2025 before separate reporting mechanisms for tips and qualified occupations are available.
Effective Date and Public Hearing
The tip deduction under Section 224 is effective for taxable years beginning after December 31, 2024, and before January 1, 2029. The proposed regulations apply to the same period, and taxpayers may rely on them until final regulations are published, provided they are followed in their entirety and consistently.
Public comments on the proposed regs are due October 22, 2025.
A public hearing is set for October 23. Requests to attend are due by October 21.
For more on what is considered a qualified tip for the purposes of the no tax on tips deduction, see Checkpoint’s Federal Tax Coordinator 2d ¶ H-3552.
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