economy
IRS Publishes List of Occupations That Qualify for 'No Tax on Tips' Provision
The "big beautiful bill" introduced a tax provision that allows some workers to deduct the tips they earn. The IRS released the final rule on who qualifies.
TL;DR
- The IRS and U.S. Treasury have released new guidance on a tax provision allowing some tipped workers to deduct "qualified tips" from federal income tax.
- This provision applies for tax years 2025 through 2028 and is capped at $25,000 annually, with phase-outs for individuals earning over $150,000 and couples over $300,000.
- Tips are still subject to payroll taxes (Social Security, Medicare) and potentially state income tax.
- Over 70 occupations are listed as potentially qualifying, falling into categories like food service, entertainment, hospitality, personal services, and transportation.
- Qualifying tips must be voluntary, paid in cash or cash-equivalent, and received directly or through a tip-sharing pool.
- Automatic service fees and tips pooled by managers are not deductible as qualified tips.
- The benefit may not significantly help the lowest-earning workers who do not owe federal income tax due to not exceeding the standard deduction.