Global Daily Tax News, US Authorities Guide On Tax Waiver For Tips, (Sep 23, 2025)

The US Department of the Treasury and the Internal Revenue Service have issued regulations on "no tax on tips" provision included in the One Big Beautiful Bill Act, listing nearly 70 separate occupations that typically receive tips that are eligible for the tax waiver.

The agencies are seeking comments from stakeholders within 30 days of the regulation's publication – by October 23, 2025.

The regulations provide for a new Treasury Tipped Occupation Code, which provides a three-digit code and descriptions for the occupations listed. 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; and

• 800s – Transportation and Delivery.

The regulations stipulate that, 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. This 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; and

• 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 percent 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, the regulations prescribe. Further, any amount received for illegal activity, prostitution services, or pornographic activity is not a qualified tip.