The U.S. Department of the Treasury and Internal Revenue Service on Friday released further guidance for taxpayers who may benefit from the "no tax on tips" provision enacted via President Donald Trump's "big beautiful bill," which was signed into law in July.
Despite the name of the provision, tipped earnings may still be taxed in some capacity. The deduction only applies to federal income tax, so workers' tips will still be subject to payroll taxes like those that fund Social Security and Medicare. They also could owe state income tax on earnings.
Additionally, the law, which applies for tax years 2025 through 2028, only allows workers who receive tips to deduct up to $25,000 in "qualified tips." The deduction phases out for individual filers earning more than $150,000 a year and married couples making above $300,000 a year.
An estimated 6 million taxpayers report tipped wages, according to the IRS.
The final regulation the IRS released Friday names over 70 occupations that may receive tips which may qualify for the deduction, as well as a clarified definition of qualifying tips. Qualifying occupations fall into one of eight categories, the agency says:
- Beverage and food service, which includes bartenders, wait staff and dishwashers
- Entertainment and events, which includes musicians, DJs and other performers
- Hospitality and guest services, which includes concierges and housekeeping staff
- Home services, which includes repair workers and groundskeepers
- Personal services, which includes event planners, photographers and personal care aides
- Personal appearance and wellness, which includes hair and makeup stylists and personal trainers
- Recreation and instruction, which includes tour guides, activity instructors and golf caddies
- Transportation and delivery, which includes taxi and rideshare drivers, movers and delivery workers
Qualifying tips are received by workers in the included occupations and must meet several criteria, including the following, the IRS says:
- Tips must be paid in cash or through a cash-equivalent medium like credit or debit card payments.
- Employees must receive tips from customers directly or through a tip-sharing pool.
- Tips must be voluntary. Automatic service fees for large parties at a restaurant cannot be deducted as a qualifying tip, for instance.
Additionally, managers and supervisors who pool tips with employees are not eligible to deduct those amounts, but they may be able to deduct tips they receive directly, says Jeremy Wells, a certified public accountant.
With the federal tax deadline for 2025 on Wednesday, eligible taxpayers are already reaping the benefits of the regulation, IRS CEO Frank J. Bisignano said in the final rule announcement.
"Given the wide variety of workers who receive tips, these final regulations help implement an important tax benefit for American workers," Bisignano said.
While the policy may give some workers a break, the lowest-earning workers may not benefit because they don't earn enough to owe federal income taxes. Taxpayers who earn less than the standard deduction â $15,750 for individuals or $31,500 for couples married filing jointly for tax year 2025 â don't have to file a federal income tax return.
More than a third of tipped workers didn't earn enough to owe income taxes in 2022, according to the Yale Budget Lab, a non-partisan policy research center.
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