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: 

1. They must work in an occupation listed by the Treasury Department and IRS, 
2. They must receive qualified tips
3. They must have an SSN valid for work
4. 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.