LEARNING CENTER
New Tip Deduction Rules: Eligible Occupations Unveiled
On September 2, 2025, the Treasury Department introduced a draft list comprising 68 occupations eligible for the groundbreaking "no tax on tips" deduction. This deduction is a key feature of the "One Big Beautiful Bill Act," enacted on July 4, 2025, and targets federal income tax returns for the 2025–2028 tax years.
The deduction permits up to $25,000 in eligible tips per individual annually. Structured as a “below-the-line” deduction, it is accessible to those opting for the standard deduction and does not impact the adjusted gross income (AGI) calculations.
Review the Treasury's tentative list of qualifying professions:
Beverage & Food Service:
Bartenders
Wait staff
Food servers, non-restaurant
Dining room and cafeteria attendants and bartender helpers
Chefs and cooks
Food preparation workers
Fast food and counter workers
Dishwashers
Host staff, restaurant, lounge, and coffee shop
Bakers
Entertainment and Events:
Gambling dealers
Gambling change persons and booth cashiers
Gambling cage workers
Gambling and sports book writers and runners
Dancers
Musicians and singers
Disc jockeys (excluding radio)
Entertainers and performers
Digital content creators
Ushers, lobby attendants and ticket takers
Locker room, coatroom and dressing room attendants
Hospitality and Guest Services:
Baggage porters and bellhops
Concierges
Hotel, motel, and resort desk clerks
Maids and housekeeping cleaners
Home Services
Home maintenance and repair workers
Home landscaping and groundskeeping workers
Home electricians
Home plumbers
Home heating/air conditioning mechanics and installers
Home appliance installers and repairers
Home cleaning service workers
Locksmiths
Roadside assistance workers
Personal Services
Personal care and service workers
Private event planners
Private event and portrait photographers
Private event videographers
Event officiants
Pet caretakers
Tutors
Nannies and babysitters
Personal Appearance and Wellness
Skincare specialists
Massage therapists
Barbers, hairdressers, hairstylists and cosmetologists
Shampooers
Manicurists and pedicurists
Eyebrow threading and waxing technicians
Makeup artists
Exercise trainers and group fitness instructors
Tattoo artists and piercers
Tailors
Shoe and leather workers and repairers
Recreation and Instruction
Golf caddies
Self-enrichment teachers
Recreational and tour pilots
Tour guides and escorts
Travel guides
Sports and recreation instructors
Transportation and Delivery:
Parking and valet attendants
Taxi and rideshare drivers and chauffeurs
Shuttle drivers
Goods delivery people
Personal vehicle and equipment cleaners
Private and charter bus drivers
Water taxi operators and charter boat workers
Rickshaw, pedicab, and carriage drivers
Home movers
The OBBB tip exclusion provides temporary tax relief for qualifying tipped workers for tax years 2025 through 2028. To qualify for this deduction, an individual must satisfy several requirements:
Be a qualified tipped worker: Must hold a position that typically received tips prior to 2025, as detailed in the draft list of eligible occupations.
Have qualified tips: Tips must be customer-paid, either in cash, credit, or through tip-sharing arrangements. Mandatory service charges are ineligible.
Properly report tips: Proper reporting to the IRS using Form W-2 (employees) or Form 1099 (independent contractors) is essential.
File jointly if married: Married couples must file jointly to claim the deduction.
Provide a Social Security Number (SSN): Claimants must include their SSN on their tax returns.
Deduction Limitations: The deduction features specific limits and phases out for higher-income individuals:
Maximum deduction: Capped at $25,000 annually.
Income phase-out: Reduces for Modified Adjusted Gross Income (MAGI) above set thresholds:
Single filers: Phase-out begins at MAGI over $150,000.
Married filing jointly: Phase-out begins at MAGI over $300,000.
Additional Considerations:
Exemption from payroll taxes: While deductible from federal income tax, tips are subject to Social Security and Medicare taxes, or self-employment tax for independent contractors.
Temporary measure: This deduction expires on December 31, 2028.
Not tax-exempt: Deduction reduces taxable income, but all tips must still be reported.
State tax impacts: Dependent on state tax regulations.
In conclusion, understanding which occupations qualify for tip deductions is fundamental for employees and employers aiming to enhance their tax advantages. Staying informed about the specific eligibility criteria for tips and how various occupations fit within this framework ensures compliance while optimizing tax strategies. As tax laws evolve, it is crucial for all stakeholders to remain updated on legislative changes and seek professional guidance as necessary to adeptly navigate the intricacies of tip income and deductions. Contact Cherokee CPA for expert advice on maximizing tax benefits.
For further inquiries and expert assistance, feel free to reach out.
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