Published: April 13, 2026
Purpose: Implements the “No Tax on Tips” deduction created by Section 224 of the Internal Revenue Code under the One Big Beautiful Bill Act (OBBBA). [New tab]
Key Takeaway
The rule establishes:
- Which occupations qualify for the federal qualified-tip deduction.
- What counts as a qualified tip.
- Eligibility limitations and anti-abuse rules.
The Deduction
Eligible taxpayers may deduct up to $25,000 per year of qualified tips from income for federal income tax purposes.
Income Phase-Out
The deduction is reduced when modified adjusted gross income exceeds:
| Filing Status | Phaseout Begins |
|---|---|
|
Single |
$150,000 |
|
Joint |
$300,000 |
The deduction is reduced by $100 for every $1,000 over the threshold.
Effective Period
Applies to tax years beginning after December 31, 2024, and expires after December 31, 2028.
What Counts as a Qualified Tip?
A tip must:
- Be received in a qualifying occupation.
- Be voluntary.
- Be determined by the customer.
- Be separately reported on required tax forms.
- Be paid in cash or cash-equivalent forms.
Examples of qualifying payment methods:
- Cash
- Checks
- Credit cards
- Debit cards
- Gift cards
- Casino chips
- Mobile payment apps
- Foreign currency
What Does NOT Count?
Automatic gratuities
Mandatory gratuities and service charges are not qualified tips, even if distributed to employees.
Digital assets
The final rule specifically excludes:
- Bitcoin
- Ether
- Stablecoins
- Other digital assets
from the definition of cash tips.
Illegal or prohibited activities
No deduction is available for tips received from:
- Illegal activities
- Prostitution
- Pornographic activity
Major Occupations Eligible for the Deduction
The IRS created a comprehensive list of qualifying tipped occupations. Notable categories include:
Restaurant & Food Service
- Bartenders
- Servers
- Hosts
- Baristas
- Fast-food workers
- Chefs
- Cooks
- Dishwashers
- Food prep workers
- Bakers
Beauty & Wellness
- Barbers
- Hairstylists
- Cosmetologists
- Manicurists
- Pedicurists
- Massage therapists
- Estheticians
- Makeup artists
- Tattoo artists
- Eyebrow/eyelash technicians
Transportation
- Taxi drivers
- Rideshare drivers (Uber/Lyft)
- Delivery drivers
- Shuttle drivers
- Valets
- Home movers
- Charter boat workers [New tab]
Hospitality
- Bellhops
- Concierges
- Hotel desk clerks
- Housekeepers [New tab]
Entertainment
- Musicians
- Singers
- DJs
- Dancers
- Entertainers
- Digital content creators
- Tour guides
Home Services
- Electricians
- Plumbers
- HVAC technicians
- Landscapers
- House cleaners
- Locksmiths
- Appliance repair workers
Newly Added in Final Rule
The IRS added several occupations after public comment, including:
- Floral designers
- Visual artists
- Gas pump attendants
- Horse groomers/show-animal caretakers
- Certain event officiants (including clergy performing weddings/funerals)
Notable Exclusions
The IRS specifically declined to add:
- Retail cashiers
- Accountants
- Tax preparers
- Attorneys (“low bono” legal providers)
- Chiropractors
- Most clergy as a standalone occupation
Reporting Requirements
To claim the deduction:
- Tips generally must be reported on Forms W-2, 1099, or Form 4137.
- Taxpayer must have a valid Social Security Number.
- Married taxpayers must file a joint return to claim the deduction.
Anti-Abuse Rules
The IRS will disallow deductions where payments are recharacterized as tips rather than true compensation. Examples include:
- Employers “tipping” employees.
- Owners receiving tips from entities they own.
- Artificial shifting of service fees into “tips.”
Practical Bottom Line
This regulation is the IRS's implementation of the federal “No Tax on Tips” provision. It creates a detailed IRS-approved list of tipped occupations, clarifies that the gratuity must be truly voluntary, excludes service charges and digital assets, and caps the deduction at $25,000 annually through 2028.
For your law practice, the most notable interpretive issues likely to generate client questions are:
- Whether a worker's occupation is on the IRS list.
- Treatment of automatic gratuities.
- Independent-contractor/gig-worker reporting.
- Digital creator tipping.
- Married-filing-jointly requirement.
- Excluded professions (including lawyers and accountants). [New tab]
