The IRS has finalized regulations implementing the “No Tax on Tips” provision of the One Big Beautiful Bill (OBBB) – defining “qualified tips” and identifying over 70 occupations as being eligible for the new deduction. (IR 2026-49, 4/10/2026; T.D. 10044)
Tips Deduction
The OBBB provides a temporary, new deduction for “qualified tips,” defined as “cash tips” received by individuals in an occupation that “customarily and regularly” received tips as of December 31, 2024. The deduction, set forth under IRC § 224, is limited to $25,000 per tax year and phases out for higher-income taxpayers. It is available for the 2025–2028 tax years.
To qualify for the deduction, the taxpayer must have received tips that were paid voluntarily. In addition, the deduction is not available for taxpayers who receive tips in the course of a specified service trade or business, as defined in IRC § 199A(d)(2).
The final rule largely tracks a September 2025 proposed rule (REG-110032-25), with clarifications and limited additions.
List of Occupations
The IRS specifies that it maintained the same methodology and data from the proposed regulations, including updated preliminary 2024 tax return information, to develop the List of Occupations that Receive Tips in the final regulations. Where commenters requested an occupation be added to the proposed list, the agency reviewed data and expanded or refined the list of occupations as needed.
The IRS rejected a commenter’s suggestion to provide a safe harbor for occupations not on the final list and conduct a semi-annual review to add occupations to the list. The agency explained that the OBBB requires “a comprehensive list as of a fixed point in time.” While the list of occupations in the final rule is “exhaustive,” the IRS added that the “illustrative examples of occupations” that fit within each Treasury Tipped Occupation Code (TTOC) are not.
The IRS made the following additions to the final list of occupations:
- “Floral Designers” (TTOC 510)
- “Visual Artists” (TTOC 509)
- “Gas Pump Attendants” (TTOC 810)
The IRS also made clarifications to the final list, including the following:
- Doorman, to clarify that certain workers who do not work in a hotel or motel are also eligible for the deduction.
- Eyebrow Threading and Waxing Technicians category revised to include eyelash technicians.
- “Food Servers, Non-restaurant” category revised to “Food and Beverage Servers, Non-restaurant.”
- “Goods Delivery People” and “Taxi and Rideshare Drivers and Chauffeurs” categories revised to include app/platform-based delivery persons.
- “Travel Guides” defined to include both indoor and outdoor location services.
- “Wait Staff” revised to include “banquet staff” and service at catered events.
- “Personal Care and Service Workers” revised to include work performed in a residential facility.
- “Pet Caretaker” category revised to “Pet and Show Animal Caretaker,” with “horse groomer” added as an illustrative example.
‘Voluntary’ Tips
Under the proposed rule, service charges, automatic gratuities, and any other mandatory amounts automatically added to a customer’s bill by the vendor or establishment are not qualified tips. The IRS maintained that position in the final rule, explaining that such automatic gratuities do not comply with statutory requirements for qualified tips.
However, the IRS explains that if a customer freely provides an amount in excess of the automatic gratuity, that additional amount may constitute a qualified tip. In addition, the agency clarifies that the customer must have the option to reduce the tip amount to zero for the tip to qualify as voluntary.
Regarding digital creators, the final rule adds new examples to clarify when payments are tips and when they are compensation. Specifically, payments made to access the creator’s content are not tips, according to the IRS.
Cash Tips
The IRS largely maintained the definition of “cash tip” set forth in the proposed rule. The agency did, however, clarify that cash tips also include amounts paid in foreign currency.
In addition, the agency provides that all digital assets, as defined under IRC § 6045(g)(3)(D) and Reg. § 1.6045-1(a)(19), are excluded from the definition of cash tips. However, the IRS intends to modify this if payment stablecoins are treated as cash or cash equivalents for other U.S. income tax purposes under the GENIUS Act, or if other legislation “modifies the characterization of digital assets.”
Anti-Abuse Provisions
The IRS also responded to commenters’ requests for additional clarity on the prohibition against reclassification of income as qualified tips.
Accordingly, the agency updated the rule to provide that an amount is not a qualified tip if “based on all relevant facts and circumstances, the amount represents a recharacterization of wages or payments for goods or services for purposes of claiming the deduction.” The final rule also provides examples of when a “recharacterization” may have occurred, and instances where there is an “irrebuttable presumption” of recharacterization.
Effective Date
The rule is effective June 12, 2026, but applies for tax years beginning after December 31, 2024.
For more on the deduction for qualified tips, see Checkpoint’s Federal Tax Coordinator 2d ¶ H-3551.
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