Tipped workers can deduct up to $25,000 from their taxable income under the “No Tax on Tips” provision of the One Big, Beautiful Bill Act (OBBBA), which President Trump signed into law on July 4, 2025. The temporary provision is in effect for 2025 through 2028. With just a week left in the 2025 filing season, the IRS has finalized regulations that explain what counts as “qualified tips” and, importantly, who can take advantage of the deduction.

Here’s what you need to know.

What are qualified tips?

Qualified tips are payments earned in a recognized tipped occupation, paid voluntarily by customers, and given in cash or its equivalent.

How does the IRS define a tipped occupation?

The bright line is December 31, 2024—your occupation must have “customarily and regularly” received tips before that date. As for the definition? It’s built on real-world tipping norms.

Those norms were based on a review of IRS data, legislative history, and survey data on tipped occupations. Treasury and IRS also checked the dictionary (yes, really) and other laws, including the Fair Labor Standards Act (FLSA), for guidance. And, of course, they looked at tax data, specifically 2023 Forms W-2, with an eye towards those that reported tips in box 7 (Social Security tips); Forms 4137 that reported tips on line 4; and corresponding income tax returns. That data was also compared to similar data for 2017-2022. The IRS also reviewed public comments.

(You can read more and find the previously released list here.)

Where did these comments come from?

A notice of proposed rulemaking and a notice of public hearing were published in the Federal Register on September 22, 2025, proposing regulations that identify occupations that customarily and regularly received tips on or before December 31, 2024, and that provide a definition of “qualified tips” for purposes of the income tax deduction for qualified tips under section 224. A public hearing was held on October 23, 2025, and comments were solicited. The comments are available for public inspection online or upon request.

What occupations made the final cut?

Some comments were incredibly specific, and the Regs took those into consideration. So, in response to the comments, the Regs confirm that pet groomers, digital content creators, dancers, boat workers, pool cleaners and yoga instructors remain on the final list.

The list had previously included some “illustrative examples” that some commenters felt weren’t inclusive enough. The Regs stress that the illustrative examples were provided to assist taxpayers, but they are not an exhaustive list of all occupations that fall under a Treasury Tipped Occupation Code (TTOC) category. The TTOC is a 3-digit classification system used to identify professions eligible for the deduction.

For example, under the TTOC for Travel Guides (705), cruise director and river expedition guide are listed as illustrative examples, but other travel guides, such as a hiking guide or urban ghost tour guide, would also be included in this TTOC, even though they are not listed as illustrative examples. That category also includes both indoor and outdoor locations.

In response to specific comments, the Regs also confirm that table game supervisor, doorman, eyelash technician, winery tasting room server, banquet wait staff, senior living and resident care service provider, and horse groomer are now included in the list. Also added to the list? People who dress as Santa Claus for parties, as well as those that impersonate other characters or celebrities—they’re covered by the “Entertainers and Performers” (TTOC 208) category. (Presumably, the real big guy would also qualify.)

And when it comes to gig economy delivery drivers, the phrase “over established routes or within an established territory” was removed from the description of “Goods Delivery People,” and app-based delivery workers are specifically included.

Were there any new occupations added to the list?

A few. While the Regs largely clarified existing categories, a new category was added for Floral Designers (TTOC 510), encompassing a variety of floral workers.

The final regulations also include a new category, Visual Artists (TTOC 509), which encompasses individuals who create original visual artwork using a wide variety of media and techniques. Examples include an ice sculptor and a caricature sketch artist.

And a new TTOC was added for Gas Pump Attendants, which applies to all individuals who pump gas for customers at a gas station and may also clean the windshield, check the oil level, or check the tire pressure of the customer’s car while the car is being refueled. (Shout out to New Jersey and Oregon, which were specifically referenced since those states currently prohibit customers from pumping their own gas.)

Do the occupation codes actually matter?

Yes, the occupation codes help the IRS identify whether a particular job qualifies for the deduction. The Regs also address the possibility that a particular job might fall under more than one category. In that case, the occupation code would depend on the specific circumstances.

For example, self-enrichment and self-improvement instructors, such as intuition coaches, energy practitioners (including Reiki and Energy Psychology practitioners), and meditation instructors may be covered under “Self-Enrichment Teachers” (TTOC 702), if their instruction is for the primary purpose of self-enrichment, rather than for an occupational objective, educational attainment, competition; or fitness; “Sports and Recreation Instructors” (TTOC 706), if they are teaching or instructing individuals or groups for the primary purpose of recreation, rather than for an occupational objective, educational attainment, competition, or fitness; or “Exercise Trainers and Group Fitness Instructors” (TTOC 608), if they are instructing or coaching groups or individuals in exercise activities for the primary purpose of personal fitness.

What about those SSTB jobs?

Tips received in connection with certain specified service trades or businesses, sometimes referred to as SSTBs—such as the performing arts, athletics, healthcare, law, accounting, consulting, finance, brokerage, and other professional services—are excluded, even if the occupation itself appears on the tipped-occupations list. And, importantly, those rules don’t just apply to employers and owners, but also employees.

(A rule of thumb? Occupations that are excluded under section 199A are generally excludable here—that’s true even if the owner of the trade or business is not able to claim a section 199A deduction. Those occupations generally include any business whose success depends on the reputation or skill of its employees.)

Are there any other specific exclusions?

Definitely. Chiropractors, accountants, tax preparers, clergy members, concert merchandise sellers, and “low bono” legal service providers (legal professionals who provide legal services to clients on a sliding scale based on income) were all suggested as additions to the list. The answer was generally no, with an exception for clergy who may receive tips in event settings, such as weddings or funerals, which are included as an illustrative example under “Event officiants” (TTOC 505).

Retail cashiers were also rejected as a category, although some other cashiers may fall under other categories.

The Regs also made clear that real estate agents, insurance agents, and sales professionals cannot reframe commissions or client add-ons as tips. Treasury emphasized substance over form, making clear that payments tied to pricing, negotiation, or employer-designed compensation systems do not qualify, regardless of how they are labeled.

Are there any new restrictions for digital creators?

Yes. The final regulations make clear that customer payments to a digital content creator that allow customers to access the creator’s content are not tips but rather compensation to the creator. However, voluntary customer payments after the customer has already gained access to the creator’s content would be considered tips.

The final regulations also clarify that tipping digital content creators through audience engagement mechanisms that result in superficial digital rewards, such as highlighted messages or other digital tokens of appreciation from the tip recipient that are negligible in value, do not disqualify an otherwise qualified tip.

What about amounts received for illegal activities, pornography, and prostitution?

The proposed regulations had declared that qualified tips would not include those received in connection with illegal activity, defined as a felony or misdemeanor under applicable law, including performing services in human trafficking, exotic pet smuggling, counterfeiting or fencing stolen goods, drug trafficking, drug dealing, and unlicensed sales that violate the applicable law. Qualified tips also don’t include tips associated with prostitution or pornography.

(What, exactly, qualifies as pornography? While Justice Potter Stewart declared, “I know it when I see it" to describe the test for obscenity in Jacobellis v. Ohio, the IRS will likely have its own set of criteria. Chances are, though, that some online accounts, including some on OnlyFans, will be disqualified.)

The final regulations—despite some opposition and suggestion that this would be contrary to the First Amendment—do not change these rules.

What if I work two different jobs for the same employer, and only one occupation makes the list?

Easy: split the tips accordingly. You can deduct the qualified tip amounts received in the occupation that made the list, but you can’t for the occupation that didn’t make the list.

Do tip pools still qualify?

Yes. Tip pools—arrangements in which employees who receive tips combine them and redistribute the total among a group of workers, typically based on a set formula or role—are similar arrangements that qualify so long as they meet the other rules, including that they are reported and voluntary.

What about mandatory service charges?

To qualify, the tips must be voluntary. That means that mandatory service charges, often added automatically to restaurant bills, do not qualify. Ditto for automatic gratuities or any “tip” or charge which the customer has no discretion to modify or disregard—those are not qualified tips.

However, the Regs clarify that, to the extent the customer freely decides to provide an additional gratuity, the additional amount constitutes a qualified tip if all factors are met for that portion.

How voluntary is voluntary?

Voluntary tipping practices involving a Point-of-Sale (POS) system were a bit confusing under the proposed regulations, which would have provided that if a customer is expressly provided an option to disregard or modify amounts added to a bill, that wouldn’t be considered a mandatory amount. The language in the final regulations has been modified slightly to make clear that the customer must have the option to reduce the tip amount to zero. Under this provision, tip selection methods such as POS systems with a tip slider that goes to zero or an option for the customer to select “other” and input zero are voluntary.

What are cash equivalents?

Cash equivalents include tips paid by checks, credit cards, debit cards, gift cards, and tangible or intangible tokens readily exchangeable for cash or cash equivalents. That means that casino chips and digital tokens on streaming platforms would qualify as tips for purposes of the deduction (despite what had been suggested earlier on social media). However, for purposes of the deduction, cash tips would not include items such as event tickets, meals, services, or other assets that are not exchangeable for a fixed amount of cash. The final regulations confirm that all digital assets are excluded from the definition of cash tips.

If I fall under these rules, can I claim the tip deduction this year?

Yes, if you qualify. The deduction applies to the tax years 2025 through 2028.

Do I have to itemize to claim the deduction?

No. You can claim the deduction whether you itemize your deductions or take the standard deduction.

Where are qualified tips reported to employees?

For purposes of the deduction, qualified tips must be properly reported to the IRS on a Form W-2, 1099, or Form 4137.

Most taxpayers know about Forms W-2 and 1099, but Form 4137? It’s used to figure the Social Security and Medicare tax owed on tips you didn’t report to your employer, including any allocated tips shown on your Form W-2 that you must report as income.

How do I report those tips on my tax return?

You’ll report tips as income as you normally would (typically either as wages on line 1 or on Schedule C for your trade or business), and you’ll claim the deduction using the IRS’ new Schedule 1-A.

How much is the tip deduction?

The deduction is up to $25,000 of qualified tips reported, and it applies per tax return, not per taxpayer, meaning that married taxpayers who earn more than $25,000 of qualified tips are still capped at $25,000. The benefit is not available to married individuals filing separately, and both taxpayers must include their Social Security numbers on the return to claim it—that means that a jointly filed return must include two Social Security numbers.

Things become more confusing when tips are earned through a trade or business, including by gig workers. In that case, there’s an additional limit under section 224(c). The deduction cannot exceed the gross income from the business, less the deductions allocable to that business. Since that calculation can produce a negative number if the business operates at a loss, the tips deduction effectively disappears when that happens. The final regulations specifically addressed this provision and did not make any changes.

Are there any income restrictions?

Yes. The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). A phase-out means that the benefit of the deduction decreases as your income increases.

What about payroll taxes?

Tipped workers will still be required to pay Social Security and Medicare payroll taxes on all tip income, just as they did before.

Will this really make a difference in my taxes?

Estimates from the Council of Economic Advisors (CEA) suggest that the provision will increase the average take-home pay for tipped workers by $1,300 per year.

Where can I see the list of jobs that qualify?

You can read the final regulations—and see the list here (the list begins on page 92).

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