Memo – No Tax On Tips – Which Occupations Qualify?

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**IMPORTANT NOTE** This only applies to federal  taxes at the time of this writing.

WASHINGTON — The Department of the Treasury and the Internal Revenue Service today provided guidance on “no tax on tips” provision. The One, Big, Beautiful Bill proposed regulations identify occupations customarily and regularly receive tips and define “qualified tips” eligible taxpayers may claim as a deduction. The proposed regulations list nearly 70 separate occupations of tipped workers, from bartenders to water taxi operators.

List Of Occupations That Receive Tips

Treasury Tipped Occupation Code, provides a three-digit code and descriptions for the occupations listed within the proposed regulations. The proposed regulations group the occupations into eight categories:

• 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

• Food and Beverage Service: Wait staff, bartenders, chefs, food preparation workers, fast food and counter workers, hosts, and dishwashers.
• Entertainment and Events: Gaming dealers, dancers, musicians, disc jockeys, entertainers, digital content creators, and ushers.
• Hospitality and Guest Services: Bellhops, concierges, hotel and motel desk clerks, and housekeepers.
• Home Services: Plumbers, electricians, appliance repairers, landscapers, and home cleaners.
• Personal Services: Personal care aides, event planners, photographers, pet caretakers, and tutors.
• Personal Appearance and Wellness: Hair stylists, barbers, massage therapists, makeup artists, and tattoo artists.
• Recreation and Instruction: Golf caddies, tour guides, and sports instructors.
• Transportation and Delivery: Valets, taxi drivers, rideshare drivers, delivery drivers, and movers. 

Definition Of Qualified Tips (Important To Understand)

In order to claim the deduction, a worker must both be in an occupation on the list and receive qualified tips. The proposed regulations provide a definition of qualified and not qualified tips which includes the following factors:

• Qualified tips must be paid in cash or an equivalent medium, such as check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash, or another form of electronic settlement or mobile payment application (excluding most digital assets) denominated in cash.

• Qualified tips must be received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool.

• Qualified tips must be paid voluntarily by the customer and not be subject to negotiation. Qualified tips do not include some service charges. For instance, in the case of a restaurant that imposes an automatic 18% service charge for large parties and distributes that amount to waiters, bussers and kitchen staff; 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.

• Any amount received for illegal activity, prostitution services, or pornographic activity is not a qualified tip.

• Income limit: Your modified adjusted gross income (MAGI) must be less than $150,000 ($300,000 for married couples filing jointly). The deduction is phased out for those with higher incomes.
• Occupational requirement: You must be employed in one of the specific occupations identified by the Treasury Department and the IRS as “customarily and regularly” receiving tips before December 31, 2024.
• Maximum deduction: The annual deduction is capped at $25,000 per individual.
• Excluded occupations: Self-employed individuals in specified service trades or businesses (SSTBs), such as law, health, and financial services, are not eligible. 

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