Federal: IRS Proposes Rule for ‘No Tax on Tips’ Provision

What happened?

On September 19, 2025, the Department of the Treasury and the Internal Revenue Service (IRS) issued proposed regulations implementing the “no tax on tips” provision under the One, Big, Beautiful Bill. The public comment period has closed, and the final rule is pending.

Overview:

Rule Highlights

• Purpose: The regulations identify occupations that customarily receive tips and define “qualified tips” eligible for an income tax deduction.

• Occupations Covered: Nearly 70 occupations grouped into eight categories:

1. Beverage & Food Service
2. Entertainment & Events
3. Hospitality & Guest Services
4. Home Services
5. Personal Services
6. Personal Appearance & Wellness
7. Recreation & Instruction
8. Transportation & Delivery

• What Counts as a Qualified Tip:
  • Paid in cash or equivalent (check, card, gift card, or mobile payment).
  • Received from customers or through tip-sharing arrangements.
  • Voluntary and not subject to negotiation or mandatory service charges.
  • Excludes automatic service charges, tips from illegal activities, and tips in specified service trades (e.g., law, accounting, financial services).

• Deduction Limits: Up to $25,000 per year, subject to income-based limitations.

• Public Comments: Were due by October 23, 2025, via Regulations.gov.

Employer Considerations: Employers should monitor for the final rule and prepare to update payroll and tax reporting processes once guidance is issued.

Source References

• IRS Bulletin – IR-2025-92
• Federal Register – IRS Occupations That Customarily and Regularly Received Tips; Definition of Qualified Tips
• Regulations.gov – Comments – Occupations that Customarily and Regularly Received Tips; Definition of Qualified Tips

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