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Occupations That Customarily and Regularly Received Tips; Definition of Qualified Tips (T.D. 10044)

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Summary

The IRS published final regulations (T.D. 10044) under 26 CFR Part 1 defining "qualified tips" for purposes of the FICA tip tax. The regulations establish which occupations customarily and regularly receive tips and the requirements for tips to qualify under the Internal Revenue Code. These rules affect employers in tip-receiving industries who must withhold and pay FICA taxes on qualified tip income.

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What changed

The IRS published final regulations defining "qualified tips" for FICA tip tax purposes, establishing which occupations customarily and regularly receive tips and the requirements tips must meet under the Internal Revenue Code. The regulations are codified at 26 CFR Part 1 and are effective June 12, 2026.

Affected parties include employers in tip-receiving industries such as food service establishments who are responsible for withholding and paying FICA taxes on qualified tip income. These entities should review their tip reporting and withholding procedures to ensure compliance with the new definition by the June 12, 2026 effective date.

What to do next

  1. Review tip reporting and withholding procedures for compliance with the new qualified tip definition
  2. Implement any necessary payroll system adjustments for FICA withholding on qualified tips by the effective date

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Apr 11, 2026

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Rule

Occupations That Customarily and Regularly Received Tips; Definition of Qualified Tips

A Rule by the Internal Revenue Service on 04/13/2026

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Department of the Treasury
Internal Revenue Service
  1. 26 CFR Part 1
  2. [TD 10044]
  3. RIN 1545-BR63 ( printed page 19026) # AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final rule.

SUMMARY:

This document contains final regulations that identify occupations that customarily and regularly received tips on or before December 31, 2024, and provide a definition of qualified tips for purposes of the income tax deduction for qualified tips. These regulations affect individuals who receive tips as part of their occupation.

DATES:

Effective date: These final regulations are effective on June 12, 2026.

Applicability date: For date of applicability, see § 1.224-1(i).

FOR FURTHER INFORMATION CONTACT:

Stephanie Caden or Andrew Holubeck at (202) 317-4774.

SUPPLEMENTARY INFORMATION:

Authority

These final regulations contain amendments to the Income Tax Regulations (26 CFR part 1) under section 224 of the Internal Revenue Code (Code) related to the deduction for qualified tips. These final regulations are issued under the authority conferred by section 70201(h) of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA), which requires that, not later than 90 days after the date of the enactment of the OBBBA, the Secretary of the Treasury or the Secretary's delegate (Secretary) publish a list of occupations that customarily and regularly received tips on or before December 31, 2024, for purposes of section 224(d)(1) of the Code. The regulations are also issued under the authority in section 224(d)(2)(C), which provides that “qualified tips” do not include any amount received by an individual unless such other requirements as may be established by the Secretary in regulations or other guidance are satisfied, and section 224(g) of the Code, which instructs the Secretary to prescribe such regulations or other guidance as may be necessary to prevent reclassification of income as qualified tips, including regulations or other guidance to prevent abuse of the deduction allowed by section 224. The final regulations are also issued under the authority of section 7805(a) of the Code, which authorizes the Secretary to prescribe all needful rules and regulations for the enforcement of the Code, including all rules and regulations as may be necessary by reason of any alteration of law in relation to Internal Revenue.

Background

This document contains amendments to 26 CFR part 1 under section 224 of the Code relating to the deduction from income for qualified tips.

Under section 61(a) of the Code, amounts received by individuals as tips are included in gross income and subject to income tax. Treasury regulations under section 61 provide that “[w]ages, salaries . . . [and] tips . . . are income to the recipients unless excluded by law.” See § 1.61-2(a). [1 ]

Section 63(a) of the Code defines taxable income for taxpayers who itemize their deductions as gross income minus allowable deductions (other than the standard deduction). Section 63(b) provides that, in the case of an individual who does not elect to itemize deductions for the taxable year, taxable income means adjusted gross income reduced by the standard deduction and certain other enumerated deductions.

Section 70201(a) of the OBBBA added new section 224 to the Code providing an income tax deduction for “qualified tips” that are received during the taxable year by individuals in an occupation that customarily and regularly received tips on or before December 31, 2024. Section 70201(b) of the OBBBA added the deduction provided by section 224 to the list of deductions used to determine taxable income in section 63(b). Specifically, section 224(a) provides for a deduction in an amount equal to the qualified tips received by an individual in a taxable year that are included on statements [2 ] furnished to the individual pursuant to section 6041(d)(3), section 6041A(e)(3), section 6050W(f)(2), or section 6051(a)(18) of the Code, or are reported by the taxpayer on Form 4137, Social Security and Medicare Tax on Unreported Tip Income (or successor). Section 224(b)(1) limits this deduction to an amount not to exceed $25,000 in a taxable year. Section 224(b)(2) further limits the amount of the deduction based on a taxpayer's modified adjusted gross income, which is a taxpayer's adjusted gross income for the taxable year increased by any amount excluded from gross income under section 911, section 931, or section 933 of the Code. The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

Section 224(c) provides that, in the case of qualified tips received by an individual during any taxable year in the course of a trade or business (other than the trade or business of performing services as an employee) of such individual, such qualified tips are taken into account under section 224(a) only to the extent that the gross income for the taxpayer from such trade or business for such taxable year (including such qualified tips) exceeds the sum of the deductions allocable to the trade or business in which such qualified tips are received by the individual for such taxable year.

Section 224(d)(1) defines “qualified tips” as cash tips received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary. Section 224(d)(2) further requires that qualified tips not include any amount received by an individual unless the amount:

  • Is paid voluntarily without any consequence in the event of nonpayment, is not the subject of negotiation, and is determined by the payor;
  • Is not received in the course of a trade or business that is a specified service trade or business as defined in section 199A(d)(2) of the Code; and
  • Satisfies such other requirements as may be established by the Secretary in regulations or other guidance. Section 224(d)(2) further provides that, for purposes of determining whether amounts are received in the course of a trade or business that is a specified service trade or business as defined in section 199A(d)(2), in the case of an individual receiving tips in the trade or business of performing services as an employee, such individual is treated as receiving tips in the course of a trade or business which is a specified service trade or business if the trade or business of the employer is a specified service trade or business. ( printed page 19027)

Section 224(d)(3) provides that for purposes of section 224(d)(1), the term “cash tips” includes tips received from customers that are paid in cash or charged and, in the case of an employee, tips received under any tip-sharing arrangement.

Section 224(e) provides that no deduction is allowed under section 224 unless the taxpayer includes on the return of tax for the taxable year such individual's Social Security number (SSN) as defined in section 24(h)(7) of the Code.

Section 224(f) provides that if the taxpayer is a married individual (within the meaning of section 7703 of the Code), section 224 applies only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year. That is, the deduction is not available for a taxpayer who is married and files separately.

Section 224(h) provides that no deduction is allowed under section 224 for any taxable year beginning after December 31, 2028.

Section 70201(h) of the OBBBA instructs the Secretary to publish a list of occupations that customarily and regularly received tips on or before December 31, 2024, (“List of Occupations that Receive Tips”) for purposes of section 224(d)(1) no later than 90 days after the date the OBBBA was enacted (July 4, 2025).

The Council of Economic Advisors (CEA) released a report in June 2025, entitled “The One Big Beautiful Bill: Legislation for Historic Prosperity and Deficit Reduction,” that estimates the economic effects and fiscal impacts of OBBBA. In this report CEA estimates that the no tax on tips provision of OBBBA will increase average take-home pay for tipped workers by $1,300 per year. CEA also estimates that the provisions for no tax on overtime, no tax on tips, and senior tax relief will boost Gross Domestic Product by 0.3 to 0.4 percent while they are in effect and the growth that they generate will yield $54 to $73 billion in higher revenue to offset the direct revenue losses attributable to these provisions.

A notice of proposed rulemaking and a notice of public hearing (REG-110032-25) were published in the Federal Register (90 FR 45340) on September 22, 2025, proposing regulations under section 224 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 telephonically on October 23, 2025, and comments responding to the notice of proposed rulemaking were received.

On November 5, 2025, the Treasury Department and the IRS released Notice 2025-62, providing penalty relief for certain 2025 information reporting related to the section 224 deduction for qualified tips. In addition, Notice 2025-69, released on November 21, 2025, provides guidance regarding how individuals satisfy the requirements for the section 224 deduction for qualified tips received in 2025. Notice 2025-69 also provides transition relief for taxpayers regarding the requirement that qualified tips must not be received in the course of a specified service trade or business.

Summary of Comments and Explanation of Revisions

This Summary of Comments and Explanation of Revisions summarizes the proposed regulations, all the substantive comments submitted in response to the proposed regulations, and revisions adopted by these final regulations. The Treasury Department and the IRS received 322 written comments in response to the proposed regulations. The comments are available for public inspection at https://www.regulations.gov or upon request. After full consideration of the comments received, these final regulations adopt the proposed regulations with modifications in response to such comments as described in this Summary of Comments and Explanation of Revisions.

Many of the comments received were unrelated to tax law or otherwise outside the scope of the proposed regulations. Comments expressing general approval or disapproval of section 224 or the OBBBA, recommending statutory revisions, and addressing issues that are outside the scope of this rulemaking (such as comments relating to IRS forms, reporting procedures, and enforcement) are generally not addressed in this Summary of Comments and Explanation of Revisions section or adopted in these final regulations. Guidance on claiming the deduction for 2025 was provided in Notice 2025-69, and additional guidance on information reporting and claiming the deduction in subsequent years will also be provided in the instructions to the relevant forms.

Some commenters requested a public hearing or requested to speak at the public hearing, which was held telephonically on October 23, 2025. Other commenters requested that the comment period be extended for at least another 30 days. To ensure that these final regulations are issued in time to provide guidance to taxpayers filing their 2025 income tax returns, the Treasury Department and the IRS did not extend the comment period, and the comment period for the proposed regulations ended on October 22, 2025; however, the Treasury Department and the IRS considered all comments received, including comments submitted after the close of the comment period that were received up to the point in the rulemaking process at which revisions to the regulatory text could no longer practicably be made. Comments received after that point could not be fully evaluated or incorporated due to the advanced stage of the drafting process. In addition to making modifications in response to the comments received, the final regulations also include non-substantive grammatical or stylistic changes to the proposed regulations.

1. Comments on the Methodology Used To Construct the List of Occupations That Receive Tips

Table 1 in § 1.224-1(f) of the proposed regulations contains the proposed list of occupations that customarily and regularly received tips (List of Occupations that Receive Tips) on or before December 31, 2024, that section 70201(h) of the OBBBA instructed the Secretary to provide. The Treasury Department and the IRS compiled the proposed List of Occupations that Receive Tips based on a review of IRS data, legislative history, and survey data regarding tipped occupations and the presence of certain factors demonstrating that those occupations customarily and regularly received tips. Because the Code does not define the phrase “customarily and regularly,” the Treasury Department and the IRS looked to dictionary definitions and other statutory provisions, including the provisions of the Fair Labor Standards Act (FLSA), for guidance.

With these parameters in mind, the Treasury Department and the IRS reviewed data collected from 2023 Forms W-2, Wage and Tax Statement, [3 ] that reported tips in box 7 on the form (Social Security tips); Forms 4137 that reported tips on line 4; and ( printed page 19028) corresponding income tax returns (Forms 1040). The Treasury Department and the IRS identified occupations listed on the income tax returns (as reported on page 2 of Form 1040 next to the taxpayer's signature) described in the prior sentence as having customarily and regularly received tips based on the percentage of taxpayers who reported at least $100 in annual tip income within a given occupation as reported on Form 1040.

To account for limitations in this data, including the fact that the data pool consisted only of individuals working as employees and relied on self-reported and non-standardized occupation descriptions, the Treasury Department and the IRS also evaluated occupations identified in the Gaming Industry Tip Compliance Agreement (GITCA) program, a voluntary tip reporting program for the gaming industry run by the IRS, and other similar IRS tip reporting programs. The Treasury Department and the IRS also consulted the House Budget Committee report on the OBBBA, H. Rept. 119-106, at 1502 (2025), for additional information regarding occupations that traditionally and customarily received tips on or before December 31, 2024. Finally, the Treasury Department and the IRS analyzed survey data from the Panel Study of Income Dynamics (PSID) that included information on occupations and tip income of both employees and self-employed individuals. The PSID is a nationally representative survey conducted by the University of Michigan.

In organizing the proposed List of Occupations that Receive Tips, the Treasury Department and the IRS created a new categorization system based on the 2018 Standard Occupation Classification (SOC Code) system, called the Treasury Tipped Occupation Code (TTOC) system. The SOC Code system is a Federal statistical standard used by Federal agencies to classify workers into occupational categories for the purpose of collecting, calculating, or disseminating data. It is published by the Executive Office of the President, Office of Management and Budget (OMB).

Many commenters addressed the methodology used to create the proposed List of Occupations that Receive Tips. One commenter suggested that the IRS review public comments submitted in response to the Bureau of Labor Statistics' Notice of solicitation of comments to revise the SOC for 2028 (BLS-2024-0001), published in the Federal Register on June 12, 2024 (89 FR 49911), when considering other occupations to add to the list. Another commenter suggested that the primary source used to create the list, occupations reported on an income tax return, does not reflect any historical or traditional information about tipped occupations. One commenter noted that many of the occupations on the list, especially those that do not have regular interaction with the public like cooks, dishwashers, and prep cooks, are not historically known to receive tips.

One commenter suggested that the Treasury Department and the IRS narrow the list by focusing on the frequency or prevalence of tip income. The commenter noted that the definitions of customarily and regularly discussed in the proposed regulations were a “logical starting point,” but questioned whether these definitions were applied in the methodology beyond excluding workers reporting less than $100 in tips per year. The commenter questioned why a $100 annual threshold was selected instead of a $30/month threshold, which is used in the FLSA context. One commenter argued that the proposed standard of “more often than occasionally” conflicted with the $100 annual threshold. Several commenters noted that the proposed regulations do not explain how the additional sources, outside of income tax returns, were used to add occupations to the list and that the addition of certain occupations is not supported by data. Two commenters requested more transparency as to how the list was created, including providing transparent categorization standards, written job descriptions, and stated evidence thresholds for inclusion.

Finally, a few commenters noted that eligibility in a particular occupation should be based on the nature and substance of the services provided in the occupation, rather than the context or industry in which they are provided and that the list should be revised to focus more on the nature of occupations rather than on the industry or type of service or product provided.

One commenter stated that the occupations designated by the Treasury Department and the IRS as eligible for no taxes on tips appropriately captured traditional tipped occupations and requested that none of these occupations be cut from the final rule. Another commenter noted that the proposed List of Occupations that Receive Tips accurately reflects those intended by Congress to receive the tax deduction.

Section 70201(h) of the OBBBA requires the Treasury Department and the IRS to publish a list of occupations that customarily and regularly received tips on or before December 31, 2024. This provision did not dictate a specific process for creating this list. In constructing a methodology for creating the proposed List of Occupations that Receive Tips, the Treasury Department and the IRS used traditional tools of statutory construction, including dictionary definitions, to clarify what it means for an occupation to customarily and regularly receive tips. In compiling the proposed list, the Treasury Department and the IRS needed a source of occupational data from which to select those occupations that customarily and regularly received tips on or before December 31, 2024, to avoid relying solely on anecdotal information. The Treasury Department and the IRS utilized the best comprehensive data source available to them—occupations reported on 2023 Federal income tax returns, [4 ] the latest tax year for which complete information was available at the time the proposed regulations were published. The many different occupations that taxpayers identified on the “Your occupation” line on their income tax returns were analyzed based on the SOC Code associated with the occupation. The SOC Codes associated with income tax returns with accompanying 2023 Forms W-2, Wage and Tax Statement, and Forms 4137, Social Security and Medicare Tax on Unreported Tip Income, reporting more than $100 per year in tip income were identified and compiled into a preliminary list. For every SOC Code on this list, data on reported tips, including the percentage of individuals within that SOC Code who reported tips (on associated Forms W-2 and 4137), was determined. Thus, occupational data from income tax returns was calculated with respect to the related SOC Code, not necessarily for the occupation listed on the individual income tax return. Next, the Treasury Department and the IRS created the TTOC system for organizing the proposed List of Occupations that Receive Tips. This process sometimes involved combining or dividing certain SOC Codes to describe the occupations in a user-friendly manner and to remove non-tipped occupations that were included under the same SOC Code as tipped occupations. The proposed regulations identified some occupations as distinct categories, while other occupations were embedded in broader categories (for example, eyelash technicians, as discussed later, were included implicitly under TTOC 603 ( printed page 19029) Barbers, Hairdressers, Hairstylists, or Cosmetologists or TTOC 606 Eyebrow Technicians).

As explained in the preamble to the proposed regulations and noted earlier, the proposed List of Occupations that Receive Tips and its related data on reported tips had limitations. Tipped occupations with a large proportion of individuals working in those occupations as independent contractors may have been underrepresented in the list, since the list only included employees reporting tips. [5 ] In addition, in certain cases, tipped occupations were grouped in the same SOC Code as non-tipped occupations, resulting in a lower percentage of individuals reporting tips for that SOC Code than for the occupation within the SOC Code that was the tipped occupation.

As described earlier, other information sources, including occupations identified in the GITCA program, the House Budget Committee report on the OBBBA, and the PSID, were consulted to help address some of the limitations of the list. However, many of these sources were not exhaustive lists of tipped occupations and others were based on data not as comprehensive and statistically significant as income tax return data.

While the data and information the Treasury Department and the IRS used to develop the proposed List of Occupations that Receive Tips had limitations, it was and continues to be the best data available for this purpose. When compiling the List of Occupations that Receive Tips in the proposed and final regulations, the Treasury Department and the IRS reviewed preliminary data available for tax year 2024. This preliminary data was updated between the issuance of the proposed regulations and these final regulations, but in both cases it is substantially similar to the tax year 2023 data and did not alter the list. None of the commenters provided alternatives for reliable data sources, nor did they provide alternative methodologies for constructing the List of Occupations that Receive Tips. For these reasons, the Treasury Department and the IRS used the same methodology and data from the proposed regulations (including updated preliminary 2024 tax return information) to develop the List of Occupations that Receive Tips in the final regulations.

In response to the comments received regarding occupations not specifically identified in the proposed list, the Treasury Department and the IRS reviewed the same available data at both the SOC Code level and the more granular level of the occupations listed on individual income tax returns. [6 ] Where the data supported a modification to the list, the Treasury Department and the IRS expanded or refined the list of occupations in the final regulations to more accurately identify occupations that customarily and regularly received tips on or before December 31, 2024. The specific comments requesting additional occupations and the changes made in response are described later in this preamble.

Concerning comments asking that the occupations on the List of Occupations that Receive Tips be based on the nature and substance of the services provided in the occupation rather than the context or industry in which they are provided, generally the names and descriptions of the occupations on the List of Occupations that Receive Tips are based on the nature of the service provided in that occupation. The groupings of the various occupations under industry-related headings like “Beverage and Food Service” is solely for purposes of organizing the list. However, in a few situations the industry context in which an occupation operates changes the nature of the occupation in comparison to other industrial contexts to such an extent that it becomes a separate occupation. For instance, “desk clerks” in the hospitality industry provide a range of very specific services to hotel, motel, and resort guests such that it is a distinct occupation from desk clerks in other industry contexts.

Some commenters expressed concern that several of the occupations on the list are not considered occupations in which employees “customarily and regularly” receive tips under the FLSA. These commenters were concerned that the inconsistencies might cause confusion. One commenter asked for more clarification as to how the List of Occupations that Receive Tips interacts with FLSA rules.

As the Treasury Department and IRS explained in the preamble to the proposed regulations, the FLSA uses the phrase “customarily and regularly” in relation to the FLSA tip credit. [7 ] The FLSA defines a “tipped employee” for whom an employer may take a tip credit as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. 203(t). The FLSA further provides that when an employer takes an FLSA tip credit for a tipped employee, the tipped employee must retain all of the tips the employee receives, except that this requirement “shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.” 29 U.S.C. 203(m)(2)(A). [8 ] United States Department of Labor (DOL) regulations provide, in part, that “[t]he phrase `customarily and regularly' signifies a frequency which must be greater than occasional, but which may be less than constant.” 29 CFR 531.57. [9 ] DOL guidance also addresses specific occupations in which employees customarily and regularly receive tips within the meaning of the FLSA. For instance, DOL guidance interpreting the FLSA states that servers, counter personnel who serve customers, bellhops, bussers (that is, server helpers), and service bartenders are examples of occupations that “customarily and regularly receive tips” for purposes of the FLSA. [10 ] The ( printed page 19030) occupations DOL has identified as occupations in which employees customarily and regularly receive tips in its guidance are not meant to be exhaustive and do not control for purposes of section 224 of the Code.

There are many differences between the specific language, purpose, and history of the FLSA tip provisions versus the language, purpose, and history of the deduction for qualified tips under section 224 of the Code. Among other things, while the text of the FLSA is expressly limited to occupations in which an employee receives “more than $30 a month in tips,” section 224 contains no such limitation, and the Treasury Department and IRS have not utilized this threshold for purposes of limiting the List of Occupations that Receive Tips.

In addition, while the FLSA contemplates that an employee must have some level of customer interaction to “customarily and regularly” receive tips, [11 ] section 224(d)(3) provides that for purposes of the deduction for qualified tips under section 224, cash tips include, in the case of an employee, tips received through a tip sharing arrangement. Accordingly, the Treasury Department and IRS included in the proposed List of Occupations that Receive Tips some occupations that may not have extensive, or any, customer interaction, and in which employees have not been considered to customarily and regularly receive tips under the FLSA, including dishwashers and cooks. The final regulations take the same approach.

In addition to the differences discussed above, section 224 and the FLSA serve different purposes. The purpose of section 224 is to provide a deduction for individuals who receive tips, while the FLSA, in relevant part, governs the conditions under which employers may take a credit towards their wage obligations for employees who receive tips. Given that section 224 of the Code and the FLSA tip provisions are entirely different statutory provisions with different histories and purposes, the inclusion of occupations as tipped occupations under section 224 has no bearing or effect on what occupations are considered tipped for purposes of the FLSA and any differences should not be a source of confusion.

Commenters also asked how the IRS will determine whether a particular taxpayer's occupation is on the List of Occupations that Receive Tips in the regulations when it is not listed as an illustrative example. One commenter asked that the IRS provide transparency as to how the IRS intends to interpret whether an occupation is on the List of Occupations that Receive Tips. Taxpayers wishing to claim the deduction and entities responsible for information reporting are primarily responsible for ensuring their occupation is on the List of Occupations that Receive Tips. The list, in most instances, is sufficiently specific to provide clarity. The IRS intends to interpret the occupations on the list in a fair and impartial manner consistent with their commonly understood meaning.

Several commenters asked that the List of Occupations that Receive Tips be a non-exhaustive one (one commenter stating that an exclusive list was not supported by statute). One commenter suggested instituting a safe harbor provision for claiming deductions for non-listed occupations and setting up a semi-annual review process for adding new occupations to the list. Another commenter suggested listing the occupations in a revenue procedure and updating the revenue procedure with additional occupations based on more current data, if necessary.

Because section 224(d)(1) provides that “[t]he term 'qualified tips' means cash tips received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary,” only tips received in an occupation that is on the List of Occupations that Receive Tips “provided by the Secretary” are qualified tips. In addition, the statutory language does not contemplate an evolving or updated List of Occupations that Receive Tips but rather describes one list of occupations that customarily and regularly received tips at a specific point in time—on or before December 31, 2024. Through the notice of proposed rulemaking notice and comment process, interested parties were provided the opportunity to suggest additions and other edits to the List of Occupations that Receive Tips in the proposed regulations. As discussed later, the Treasury Department and the IRS made several revisions in response to the comments. However, the statute requires that the Secretary provide a comprehensive list as of a fixed point in time. For this reason, the final regulations contain the requirement from the proposed regulations that only qualified tips received in connection with the occupations on the List of Occupations that Receive Tips are eligible for the deduction in section 224(a). However, note that while the List of Occupations that Receive Tips is exhaustive, the illustrative examples of occupations that fit within each TTOC are not. There may be other occupations that fall within a TTOC that are not listed as an illustrative example.

2. Comments Concerning the List of Occupations That Receive Tips

Several commenters indicated their support for specific occupations included on the proposed List of Occupations that Receive Tips, including occupations in the beauty industry, app-based delivery drivers, and digital content creators. Many commenters requested that additional occupations be added to the List of Occupations that Receive Tips. Several of the requested additions were for occupations that were already included in the proposed List of Occupations that Receive Tips, either as their own category or specifically mentioned as an illustrative example in an existing category, such as pet groomers, digital content creators, dancers, boat workers, pool cleaners and yoga instructors. Those occupations remain on the final list.

A. Comments Requesting Additional Details or Clarification for Occupations Already on the List of Occupations That Receive Tips

Some commenters requested that additional occupations be included as illustrative examples in the categories in which they belong. The illustrative examples were provided to assist taxpayers, but they are not an exhaustive list of every occupation that fits under a TTOC occupation category. 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.

One commenter asked about including “table game supervisors” in casinos on the List of Occupations that Receive Tips. The SOC Code for “First-Line Supervisors of Gambling Service Workers” (39-1013), whose duties can include planning and organizing activities and services for guests in hotels and casinos, was included in the proposed List of Occupations that ( printed page 19031) Receive Tips under TTOC 201, Gambling Dealers, and continues to be included under this category in the final regulations. Thus, table game supervisors are covered by the Gambling Dealers category.

One commenter requested that residential building staff, such as doormen, be added to the list. Most residential building staff are covered by the categories in the proposed List of Occupations that Receive Tips. For example, if a residential building has a concierge, they are already included in the “Concierges” category (TTOC 302). Residential building maintenance workers fit under the “Home Maintenance and Repair Workers” (TTOC 401). And finally, doormen fit as part of the “Baggage Porters and Bellhops” (TTOC 301). However, to clarify that this category can include workers who do not work in a hotel or motel, “doorman” has been added to the list of illustrative examples for this category in the final regulations.

Another commenter asked that eyelash technicians be added to the List of Occupations that Receive Tips. The proposed List of Occupations that Receive Tips included “Eyebrow Threading and Waxing Technicians” (TTOC 606). For clarity, in the final regulations this category is revised to read “Eyebrow and Eyelash Technicians,” and additions were made to the description to include eyelash technicians.

One commenter asked that a winery tasting room server be added to the List of Occupations that Receive Tips. The proposed List of Occupations that Receive Tips included “Food Servers, Non-restaurant” (TTOC 103), and a winery tasting room server is covered by this category. The final regulations clarify this by amending the category name to “Food and Beverage Servers, Non-restaurant” (newly added language shown in italics).

One commenter asked that the phrase “over established routes or within an established territory” be removed from the description of “Goods Delivery People” (TTOC 804) to clarify that app-based delivery workers (also called gig economy delivery drivers) are covered by that category. The proposed illustrative examples focused on the service being performed (e.g., pizza delivery, package delivery) rather than the method through which the service was requested. The Treasury Department and the IRS agree that adding “app/platform based delivery person” to the illustrative list would be helpful. The final regulations include this clarification in both “Goods Delivery People” (TTOC 804) and “Taxi and Rideshare Drivers and Chauffeurs” (TTOC 802). In addition, the phrase “over established routes or within an established territory” has been removed from the description of “Goods Delivery People” in the final regulations.

One commenter asked that more detail be provided for the various occupations in the “Recreation and Instruction” grouping to encompass the full range of outdoor recreation guiding and instructional activities, and more specifically that “Tour Guides” and “Travel Guides” expressly include outdoor, wilderness, and expedition guiding services. Although outdoor recreation occupations are addressed in “Travel Guides” (TTOC 705) (river expedition guide is listed as an illustrative example), the Treasury Department and the IRS agree that additional detail would be helpful, and the final regulations include a parenthetical noting that both indoor and outdoor locations are covered.

Another commenter requested that banquet wait staff be added to the List of Occupations that Receive Tips. The proposed regulations included the “Wait Staff” (TTOC 102) category. The Treasury Department and the IRS agree that additional detail would be helpful to confirm that banquet wait staff are covered by this category. The final regulations add “banquet staff” as an illustrative example, and the description is amended to read, “Take orders and serve food and beverages to patrons in dining establishments or at catered events” (newly added language shown in italics).

One commenter asked whether people who dress as Santa Claus for parties are in an occupation that customarily and regularly received tips on or before December 31, 2024. Individuals dressed up as Santa Claus, as well as other characters or celebrities, are covered by the “Entertainers and Performers” (TTOC 208) category.

Another commenter asked that self-enrichment and self-improvement instructors, such as intuition coaches, energy practitioners (including Reiki and Energy Psychology practitioners), and meditation instructors be included on the List of Occupations that Receive Tips. Although these specific occupations were not identified in the proposed regulations, depending on the nature of the instruction provided and the facts and circumstances of each particular situation, these instructors could 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.

One commenter requested that senior living and resident care service providers be included in the List of Occupations that Receive Tips. The proposed regulations would have included the category of “Personal Care and Service Workers” (TTOC 501). To clarify that resident care is also included in this occupation category, the description in the final regulations provides that “work is performed in various settings depending on the needs of the care recipient and may include locations such as their home, place of work, out in the community, at a daytime nonresidential facility or a residential facility” (newly added language shown in italics).

Another commenter asked that the illustrative examples name all beauty-sector occupations including estheticians and apprentices and assistants. As discussed previously, the illustrative examples are a non-exhaustive list of occupations. In addition, the final regulations clarify that apprentices and assistants qualify under the applicable TTOC occupation category if they perform the same services as those listed in the TTOC occupation description.

Finally, a commenter noted that the proposed category of “Pet Caretaker” (TTOC 506) would exclude individuals who provide care to horses because horses are considered livestock in certain legal contexts. This commenter stated that certain tasks involved in the care of horses, including grooming and exercising, are similar to the tasks included in the description of pet caretakers. In response to this comment, the final regulations include the category of “Pet and Show Animal Caretaker” (TTOC 506). In addition, “horse groomer” has been added to the list of illustrative examples for this occupation category.

B. Comments Suggesting New Occupations Be Added to the List of Occupations That Receive Tips

In evaluating comments suggesting new occupations for inclusion on the List of Occupations that Receive Tips, the Treasury Department and the IRS consulted the same data sources as in ( printed page 19032) preparing the proposed List of Occupations that Receive Tips in the proposed regulations (the 2023 income tax return data, the preliminary data available for tax year 2024, IRS voluntary tip reporting program data, legislative history and survey data regarding tipped occupations), as well as the updated preliminary data available for tax year 2024. The Treasury Department and the IRS examined the data for the suggested new occupations at the more granular level of the occupations listed on individual income tax returns, in addition to looking at the SOC Codes of the suggested new occupations. This examination of the data is the basis for responding to the following comments. [12 ]

One commenter requested that “florists” be included on the List of Occupations that Receive Tips. The proposed regulations would have included event florist as an illustrative example of “Private Event Planners” (TTOC 502), and the SOC Code for Floral Designers, 27-1023, would have been included as one of the related SOC Code for TTOC 502. Similarly, the proposed regulations would have included floral delivery persons as an illustrative example of “Goods Delivery People” (TTOC 804). In response to this comment, the Treasury Department and the IRS reviewed the available data again, this time examining the data for occupations listed on individual income tax returns that were related to florists, in addition to looking at data for florist-related SOC Codes. The Treasury Department and the IRS determined that the data for florist-related occupations listed on individual income tax returns supports adding a new TTOC for “Floral Designers” (TTOC 510), which encompasses a wider variety of floral workers. “Event florist” was removed as an illustrative example from “Private Event Planners” and added to the new “Floral Designers” category, and the related SOC Code, 27-1023, was also moved from “Private Event Planner” to the new “Floral Designers” category.

Another commenter asked that artists and artisans be added to the List of Occupations that Receive Tips. The proposed regulations did not separately identify artists as an occupation that customarily and regularly received tips on or before December 31, 2024. However, individuals who may be described as artists appeared in multiple occupation classifications, and the proposed regulations would have included certain performing artists on the List of Occupations that Receive Tips. For example, both dancers and musicians would have been included (TTOC 205 and 206). In response to this comment, the Treasury Department and the IRS reviewed the same data sources described in the proposed regulations, examining the data for occupations listed on individual income tax returns that were related to artists, distinct from occupations such as dancers and musicians, in addition to looking at data for artist-related SOC Codes. The Treasury Department and the IRS determined that the data for artist-related occupations listed on individual income tax returns supports the conclusion that a visual artist is also an occupation that customarily and regularly received tips on or before December 31, 2024. The final regulations include the new category of “Visual Artists (TTOC 509)” This category includes individuals who create original visual artwork using any of a wide variety of media and techniques. Examples of this category include ice sculptor and caricature sketch artist. Tip-related income tax return data for the occupation “artisan” did not support adding this occupation category as a separate TTOC. However, the terms “artist” and “artisan” are similar in meaning and it is possible that many individuals who perform services as an artisan might also be considered as performing services as an artist, depending on the particular facts and circumstances.

One commenter suggested that gas station attendants who pump gas for customers where they are required to do so by State law should be included on the List of Occupations that Receive Tips. The Treasury Department and the IRS reviewed tip-related income tax return data for gas pump attendants located in New Jersey and Oregon, the two States that currently prohibit customers from pumping their own gas. [13 ] This data showed that gas pump attendants in States where full-service gas pumping is mandated customarily and regularly received tips on or before December 31, 2024. Based on this data, the final regulations include a new TTOC 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 in conjunction with the car being refueled.

Commenters suggested that 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) be added to the List of Occupations that Receive Tips. In response to these comments, the Treasury Department and the IRS reviewed the same data sources described in the proposed regulations (as well as the updated preliminary 2024 tax data), examining the data for occupations listed on individual income tax returns that were related to chiropractors, accountants, tax preparers, clergy members, concert merchandise sellers, and “low bono” legal service providers, in addition to looking at the data for the SOC Codes related to these occupations. Except for clergy members acting in certain roles, the Treasury Department and the IRS determined that the data does not support that these occupations were customarily and regularly tipped on or before December 31, 2024. For that reason, these occupations are not included in the List of Occupations that Receive Tips in the final regulations. Concerning clergy, while the data does not support listing clergy members as a separate occupation that customarily and regularly received tips, it does reflect that clergy may receive tips in an event setting such as a wedding or funeral. For this reason, they are included as an illustrative example under “Event officiants” with a TTOC of 505.

Some commenters asked that retail cashiers be included on the List of Occupations that Receive Tips. The Treasury Department and the IRS reviewed the same data sources described in the proposed regulations (as well as the updated preliminary 2024 tax data), examining the data for occupations listed on individual income tax returns that were related to retail cashiers, in addition to looking at the data for the SOC Codes related to this occupation. While tip-related income tax return data does show that some individuals who self-identified as “cashiers” received tips, the data also shows that these cashiers receiving tips mostly worked in an industry that would classify them as an occupation separate from “retail cashier.” Specifically, many such cashiers ( printed page 19033) worked in the Hotel and Food Services sectors so that these cashiers would likely be categorized as Fast Food and Counter Workers (TTOC 107) (for those in food establishments) or Hotel, Motel, and Resort Desk Clerks (TTOC 303) (for those in hotel establishments). Thus, the data does not support adding a more generalized “cashier” category, and this occupation category is not included in the List of Occupations that Receive Tips in the final regulations.

Another commenter requested that the full range of positions in the gaming industry be included in the List of Occupations that Receive Tips, including poker associates who change out chips in casinos, and online dealers (sometimes known as game presenters) and other workers in the online gaming industry. There is no statutory authority in section 224 for including an occupation based solely on the fact that it is practiced in a certain industry. Only occupations that customarily and regularly received tips on or before December 31, 2024, are included in the List of Occupations that Receive Tips. Occupations in the gaming industry that meet this criterion are included in the list. This includes many of the occupations identified by the commenters, such as poker associates who change out chips in casinos (included in “Gambling Change Persons and Booth Cashiers” (TTOC 202)). For these reasons, no additional occupational categories were added to the List of Occupations that Receive Tips in response to this comment.

One commenter asked that the regulations clarify the tax consequences when managerial staff or owners participate in tip pools. The rules under the FLSA prohibit managers and supervisors from receiving tips from a tip pool. See 29 U.S.C. 203(m)(2)(b) and 29 CFR 531.54(c)(3) and (d). Given this prohibition under the FLSA, the final regulations provide that amounts received by a manager or supervisor through a voluntary or mandatory tip-sharing arrangement such as a tip pool are not qualified tips. However, the final regulations also clarify that amounts received directly by a supervisor or manager for services they provided in the course of duties performed in an occupation that customarily and regularly received tips on or before December 31, 2024, are qualified tips if all other requirements for qualified tips are met. Two examples that demonstrate this provision concerning managers are included in the final regulations.

Finally, several commenters suggested that there should be a safe harbor for all participants in a GITCA or Tip Rate Determination Agreement (TRDA) providing that they are automatically considered in a qualifying occupation. One commenter suggested that GITCA participants should not be eligible for the deduction. Another commenter asked that GITCA participants be able to claim the deduction based on their designated tip rates. Section 224 provides no basis for automatically considering participants in GITCA and TRDA as working in occupations on the List of Occupations that Receive Tips. An occupation that did not customarily and regularly receive tips on or before December 31, 2024, is not eligible for the section 224 deduction, even if workers in a similar occupation may have customarily and regularly received tips in certain specific contexts (such as in a casino). For these reasons, no safe harbor for GITCA and TRDA participants was added to the final regulations. There also is no basis for excluding an otherwise eligible individual from the section 224 deduction merely because the individual is a participant in GITCA, and no such rule is included in the final regulations. In addition, the proposed regulations would have provided that GITCA participants could claim the deduction based on their designated tip rates, and this provision is included in the final regulations.

Other nonsubstantive edits were made to the chart to correct SOC Code numbering errors. No occupations included on the proposed List of Occupations that Receive Tips in the proposed regulations were removed from the List of Occupations that Receive Tips in the final regulations.

3. Comments on the Requirement That Qualified Tips Must Be Voluntary

Section 224(d)(2)(A) expressly requires that qualified tips are paid “voluntarily without any consequence in the event of nonpayment” and not “the subject of negotiation.” The proposed regulations would have provided that amounts are qualified tips only if they are paid voluntarily and without any consequence in the event of nonpayment, are not the subject of negotiation, and are determined by the payor. Concerning automatic gratuities, the proposed regulations would have provided that qualified tips must be paid without compulsion and therefore service charges, automatic gratuities and any other mandatory amounts automatically added to a customer's bill by the vendor or establishment are not qualified tips, even if the amounts are subsequently distributed to employees. However, if a customer is expressly provided an option to disregard or modify amounts added to a bill, such amounts are not mandatory amounts.

Several commenters supported the exclusion of automatic gratuities from the definition of qualified tips in the proposed regulations. These commenters agreed that an automatic gratuity is not voluntary as required by section 224. Other commenters argued that automatic gratuities and service charges serve the same purpose as other tips and should be considered qualified tips. These commenters contended that many employers already treat these amounts as tips and that automatic gratuities are an important source of income for certain employees, such as cooks and dishwashers, who do not typically receive tips through tip-sharing arrangements due to FLSA tipping rules. [14 ] Several of these commenters maintained that automatic gratuities are an important source of tips in large group and banquet situations. Several commenters requested a transition rule, allowing individuals to treat service charges as tips for 2025. Some commenters argued that an automatic gratuity is voluntary in the sense that the customer takes the automatic gratuity into account when deciding whether to patronize an establishment.

Automatic gratuities added to a bill with no explicit option for the customer to decline or adjust the gratuity are mandatory because the customer must pay the gratuity to receive the service. The customer's “option” to reject the automatic gratuity by opting not to patronize the business is not an option to pay or not pay a gratuity (which is a choice a customer ordinarily makes based on the customer's opinion of the service after the service is provided), but is instead the option to patronize or not patronize the business (which is a choice the customer makes based on, among other things, the cost of the service, including the automatic gratuity, and the type and quality of services offered by the business, before the customer receives any service). In addition, the business determines the tip percentage of an automatic gratuity, not the customer (i.e., the payor). For these reasons, automatic gratuities do not comply with the requirements for qualified tips provided by section 224(d)(2)(A). To the extent that the customer freely decides to provide an additional gratuity, this additional ( printed page 19034) amount constitutes a qualified tip if all factors are met with respect to that portion.

In addition, the IRS has long maintained that service charges do not qualify as tips. Revenue Ruling 2012-18 provides that the absence of any of the following factors creates a doubt as to whether a payment is a tip and indicates that the payment may be a service charge: (1) the payment must be made free from compulsion, (2) the customer must have the unrestricted right to determine the amount, (3) the payment should not be the subject of negotiation or dictated by employer policy, and (4) generally, the customer has the right to determine who receives the payment. See also Ann. 2012-25, 2012-26 I.R.B. 1058; Rev. Rul. 59-252, 1059-2 C.B. 215. Example A in Revenue Ruling 2012-18 concludes that an 18% charge automatically added to a bill for a large party is a service charge and not a tip because it was dictated by the employer and was not paid free from compulsion.

Because the proposed regulations are consistent with section 224 and the IRS's longstanding position that service charges are not tips, the final regulations maintain the position in the proposed regulations that automatic gratuities, such as service charges, are not qualified tips for purposes of the deduction. In addition, because the statute is clear on this point and the IRS's position that automatic gratuities are not tips has been publicly available since at least 2012, a transition rule for 2025 concerning automatic gratuities is not warranted.

One commenter noted that while Revenue Ruling 2012-18 used similar rules to section 224(d)(2)(A) to distinguish between tips and service charges for FICA and income tax withholding purposes, the revenue ruling, unlike the proposed regulations, did not include examples with respect to “suggested gratuities”. The commenter suggested that the revenue ruling be updated to include examples of “suggested gratuities” that mirror those in the proposed regulations to provide further clarification of the revenue ruling's application in these situations. The Treasury Department and the IRS agree that the revenue ruling contains rules for distinguishing tips from service charges that are similar to the rule provided in section 224(d)(2)(A) and that “suggested gratuities,” as described in the proposed regulations, comply with these rules such that they would be considered tips under the revenue ruling. Updates to Revenue Ruling 2012-18 are outside the scope of these final regulations, but the Treasury Department and the IRS will consider updating Revenue Ruling 2012-18 or providing additional guidance containing examples involving suggested gratuities and the employment tax consequences of those payments.

The proposed regulations would have provided several examples demonstrating voluntary tipping practices involving Point-of-Sale (POS) system. Some commenters requested that the final regulations clarify that other POS systems are considered voluntary as long as they provide the customer with the option of selecting a zero value. Specifically, several commenters mentioned “tip sliders” that allow the customer to designate a tip using a sliding bar on a POS screen, which the customer “slides” to the desired tip amount. Other commenters asked about POS systems that only allow the customer to either choose a percentage or choose “other” and input zero manually.

The proposed regulations would have provided that if a customer is expressly provided an option to disregard or modify amounts added to a bill, such amounts are not mandatory amounts. 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. The examples in the final regulations have been modified to clarify that these methods are considered voluntary tipping practices.

A few commenters asked if contractual arrangements that include suggested tips for services before they are provided are voluntary tips. One commenter asked for clarification as to what “without consequence” means. In § 1.224-1(c)(3) (Example 8) of the proposed regulations described a contract with varying prices depending on whether a tip was included. The failure to agree to a specific tip amount resulted in a higher price for the service. Accordingly, nonpayment of the tip was not “without consequence” in this situation (because nonpayment resulted in a higher price). If the contract terms merely added the discretionary tip as a “convenience” for the customer, subject to the customer's agreement, the tip would be voluntary. The Treasury Department and the IRS agree that additional guidance would be helpful on this issue. Although whether the failure to pay a tip is made “without consequence” will depend on the facts and circumstances of a particular situation, the final regulations clarify that situations where nonpayment of a tip is without consequence include situations where nonpayment of the tip does not have any impact on the scope or cost of the service. The final regulations also contain a new example where the tip is part of the contract that is entered into before the services are provided. The example concludes that the tip is a qualified tip because it is paid without consequence. If the customer had chosen to not pay the tip then the scope or cost of the service would not have been affected.

Several commenters requested clarification regarding the voluntary nature of payments to digital content creators. One commenter noted that creators often perform multiple activities in a single session, and payments could be intended for different activities. The commenters asked for guidance on when payments are tips versus compensation for performance or content. One commenter asked that the final regulations clarify that audience engagement mechanisms such as “super chats,” and “super stickers,” which provide superficial digital rewards to consumers of digital content, are qualified tips. Other commenters asked that the final regulations address situations where the platform hosting a digital content creator's content receives a portion of the tip amount.

In response to the comments regarding the activities of digital content creators, the final regulations include two new examples to help clarify when payments to digital content creators are tips and when they are compensation. One example involves customer payments to a digital content creator that enable customers to gain access to the creator's content. These payments are not tips, but rather compensation to the creator for services provided (i.e., the content). The other example involves voluntary customer payments to a digital content creator after the customer has already gained access to the creator's content, which is a tip to the content provider because the payment was not required to access content and was voluntary and determined by the customer.

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. The final regulations also provide an example involving digital content creators and audience engagement mechanisms. ( printed page 19035)

Concerning platforms that retain a portion of amounts provided as tips to content creators, platform hosting is not the equivalent of content creation and is not on the List of Occupations that Receive Tips. Section 224(d)(1) provides that the term “qualified tips” means cash tips received by an individual. For purposes of the statute, the term “individual” refers to the person performing the services and receiving tips in connection with those services and does not include an entity that facilitates payment or transmits amounts between customers and service providers. In the context of digital content creation, amounts provided by users as tips are received only to the extent such amounts are paid to the content creator. Any portion of a user's payment that is retained by a host platform, which is not an occupation on the List of Occupations that Receive Tips, is not received by the individual content creator and is not a qualified tip for purposes of the section 224 deduction. No changes were made to the final regulations in response to this comment.

4. Other Comments Regarding the Definition of “Qualified Tips”

Several commenters asked that the final regulations clarify whether tips that are not reported on an information return because, for instance, the tip is provided in cash to an independent contractor or is below the required reporting threshold for certain information returns, are qualified tips. Other commenters asked that the IRS provide a mechanism similar to Form 4137 for independent contractors to report tips that are not included on an information return.

The text of section 224(a) allows a deduction only for amounts of qualified tips that are “included on statements furnished to the individual pursuant to section 6041(d)(3), section 6041A(e)(3), section 6050W(f)(2), or section 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor).” The proposed regulations would have included similar language in § 1.224-1(a). In response to these comments, the final regulations further clarify that amounts received as a tip that are not separately reported to an individual on a statement furnished to the individual pursuant to section 6041(d)(3), section 6041A(e)(3), section 6050W(f)(2), or section 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor) are not eligible for the deduction under section 224. But see Notice 2025-69 for transition rules related to 2025. Issues related to reporting requirements, such as providing a means by which independent contractors can report tips that are not included on an information return, are beyond the scope of these regulations. The requirement that tip amounts be reported to independent contractors on an information return is statutory and serves as an anti-abuse measure to prevent independent contractors from recharacterizing income as tips.

Another commenter asked that the final regulations provide a mechanism for partners to claim the deduction. The amount of a tip received by a partner in a partnership in the individual's capacity as a partner would be reported on an information return provided to the partnership, not to the individual partner, even if the individual partner ultimately receives the tip. Section 224(a) is clear that only qualified tips included in a statement furnished to an “individual” can be allowed as a deduction under section 224. Because the statement reporting the tip is provided to the partnership, not the individual, the partner cannot claim this amount as a deduction under section 224.

Finally, one commenter requested that the final regulations clarify eligibility for the deduction for an employee who works in two different occupations for the same employer, one occupation that is on the List of Occupations that Receive Tips and one that is not. If all other section 224 statutory and regulatory requirements are met, any tip amount received in an occupation that is on the List of Occupations that Receive Tips in § 1.224-1(i) may be claimed as a deduction under section 224. Tip amounts received in an occupation that is not on the List of Occupations that Receive Tips are not eligible for the deduction. If an individual works in two occupations, one that is on the List of Occupations that Receive Tips and one that is not, the individual may claim the qualified tip amounts received in the occupation that is on the List of Occupations that Receive Tips as a deduction under section 224 (assuming all other statutory and regulatory requirements are met), but may not claim as a section 224 deduction any tip amounts received in the occupation that is not on this list. If an employee works in two occupations that are both on the List of Occupations that Receive Tips, the individual may claim the qualified tip deduction with respect to amounts received in both occupations under section 224. Since this result is a function of existing rules in the proposed regulations, no change was made in the final regulations to address this question.

5. Cash Tips Definition

The proposed regulations would have defined cash tips as tips received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool, that are paid in a cash medium of exchange, including by cash, check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash (such as casino chips), and any other form of electronic settlement or mobile payment application that is denominated in cash. The proposed regulations would have excluded from this definition items paid in any medium other than cash, such as event tickets, meals, services, or other assets that are not exchangeable for a fixed amount in cash (such as most digital assets). The proposed regulations would have defined “tips” as “amounts paid by customers for services that are in excess of the amount agreed to, required, charged, or otherwise reasonably expected to have to be paid for the services in an arm's-length transaction.

Several commenters asked for more clarification on the definition of cash tips. One commenter suggested that “cash tips” be defined as any medium denominated in U.S. cash, so as not to imply a preference for physical currency. Some commenters asked that the final regulations affirm that the use of certain specific methods of payment, including digital tipping systems (such as mobile apps), ticket-out/ticket-in systems (used in casinos), and digital assets such as stablecoins, bitcoin and ether (referred to as Ethereum in the comment), qualify as cash tips for purposes of the deduction. One commenter asked that the final regulations allow for future guidance to define cash tips in the event other dollar-pegged methods become available. A few commenters requested the final regulations address foreign-sourced tip amounts and domestic-sourced tip amounts that are paid in foreign currency, specifically, whether these amounts qualify for the deduction and the reporting obligations for foreign-sourced income.

Commenters also asked whether voluntary amounts that are added to e-commerce purchases and donations made to community websites are qualified tips.

The Treasury Department and the IRS have determined that the cash tips definition in the proposed regulations generally provides a comprehensive definition that already addresses the various methods of payment about ( printed page 19036) which commenters inquired. For this reason, the definition of cash tips in the final regulations remains largely unchanged from the proposed regulations with the exception that the final regulations clarify that for purposes of section 224, cash tips also include amounts paid in foreign currency. Concerning digital tipping systems, if the tips provided through the system are denominated in cash (i.e., paid as a fixed amount of currency); are in excess of the amount agreed to, required, charged, or otherwise reasonably expected to have to be paid for the services; and are provided to an independent contractor or, if provided to an employee, are provided to the employee directly or through a tip-sharing arrangement, then the tips are considered cash tips for purposes of the deduction. In order for the amount to be eligible for the section 224 deduction in the case of an employee, the amount must also be reported to the employer as required by section 6053(a) [15 ] or reported by the employee on Form 4137. Similarly, if tips provided using a casino ticket-out, ticket-in system comply with the requirements for cash tips provided in these final regulations, then the tips are cash tips.

The proposed regulations did not directly address the treatment of stablecoins pegged to the value of the U.S. dollar. Some commenters noted that the intended treatment of stablecoins under the proposed regulations was unclear and requested clarification. These requests, and other developments, have led the Treasury Department and the IRS to reconsider whether any digital assets, including stablecoins, should be considered cash tips for purposes of section 224. Most notably, in July 18, 2025, Congress enacted the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act (Pub. L. 119-27), which provides a framework for regulating certain stablecoins, referred to as “payment stablecoins.” [16 ] The GENIUS Act makes clear that payment stablecoins are distinct from national currencies and provides that payment stablecoins may not be marketed as legal tender or as issued by the United States. On September 19, 2025, the Treasury Department published an Advance Notice of Proposed Rulemaking (ANPRM) soliciting public comments on questions relating to the implementation of the GENIUS Act (90 FR 45159). Though the GENIUS Act does not address the Federal income tax treatment of payment stablecoins, the ANPRM solicited comments on the extent to which guidance on their tax treatment would be necessary or helpful to taxpayers. The Treasury Department is reviewing the comments it received on the ANPRM and considering potential guidance on these topics, including whether payment stablecoins should be treated as cash or cash equivalents for certain U.S. Federal income tax purposes. In addition, legislative proposals have been advanced that would address various tax issues relating to digital assets, including the treatment of stablecoins.

In light of the foregoing, the final regulations provide that all digital assets (as that term is defined in section 6045(g)(3)(D) of the Code and § 1.6045-1(a)(19)) are excluded from the definition of cash tips. The Treasury Department and the IRS will consider the tax treatment of payment stablecoins in connection with implementation of the GENIUS ACT, including whether these final regulations should be revised if payment stablecoins are treated as cash or cash equivalents for other U.S. Federal income tax purposes. Additionally, if legislation is enacted that modifies the characterization of digital assets or of particular digital assets such as payment stablecoins such that they may be more appropriately characterized as “cash tips,” the Treasury Department and the IRS will take that legislation into account in considering whether to revise the rules governing the treatment of digital assets provided in these final regulations.

Concerning future guidance for other methods of payment, if the need arises to address other methods of payments, the Treasury Department and the IRS will consider issuing additional guidance at that time.

Regarding comments on e-commerce voluntary surcharges, whether or not a voluntary surcharge added to an e-commerce purchase is a qualified tip depends on the occupation of the tip recipient. If the service provided through the e-commerce transaction is from a person providing that service in an occupation that is on the List of Occupations that Receive Tips, and all other requirements for qualified tips are met, then the tip is a qualified tip. For example, if a customer commissions an artist on an e-commerce site to create a piece of art, and the customer includes a cash tip when providing payment, the cash tip is a qualified tip if all other requirements for qualified tips are met because “artist” is an occupation included in the List of Occupations that Receive Tips.

Finally, concerning voluntary charitable donations, including donations to community websites for the benefit of an individual or group of individuals, such amounts are not qualified tips because they are not amounts paid to an individual in excess of an expected or agreed-upon amount for a service provided in an arm's length transaction.

6. Specified Service Trade or Business Exclusion

The proposed regulations would have provided that an amount received by an individual in the course of a specified service trade or business (as defined in section 199A(d)(2) and § 1.199A-5(b)) is not a qualified tip. Tips received by an employee performing services for the employee's employer in the course of a specified service trade or business operated by the employer are not qualified tips, and the proposed regulations would have clarified that this rule would have applied without regard to whether an owner of the trade or business is able to claim a section 199A deduction. The proposed regulations would have also clarified that this rule applies even if the employee receiving tips in the course of working for a specified service trade or business employer is working in an occupation that customarily and regularly received tips on or before December 31, 2024, and is listed on the proposed List of Occupations that Receive Tips. The Treasury Department and IRS requested comments on the application of the existing rules under § 1.199A-5(b) to the specified service trade or business definition in section 224.

One commenter expressed concern that using the definition of a specified service trade or business from section 199A(d)(2) may exclude occupations that have historically received tips. Another commenter noted that Treasury and IRS lack the authority to expand the tips deduction by deviating from section 199A(d)(2)'s definition of a specified service trade or business. Several commenters suggested that additional guidance be issued to explain how the specified service trade or business rules apply in determining the qualified tips deduction, including adding examples of how the specified service trade or business rules apply in different employment and self-employment scenarios and the recordkeeping ( printed page 19037) requirements that must be met. One commenter requested specific guidance regarding the interplay of the hotel and lodging industry and qualified tips for those engaged in a specified service trade or business. Another requested that the act of providing personal appearance services, such as barbering, not be considered a specified service trade or business for purposes of the deduction. Another commenter noted that the exclusion for tips received in a specified service trade or business creates uncertainties and administrative complexities for employers and tipped workers, and that certain employers that did not previously have to determine whether they were specified service trade or businesses will now have to make such determinations. One commenter supported a clarification in the final regulations that roles that do not pertain to the principal trade or business at an establishment may still receive the deduction from tips paid in the course of employment at a specified service trade or business.

One commenter suggested that the specified service trade or business exclusion be applied when taxpayers file their personal income tax returns, rather than by requiring Form W-2 and Form 1099-series reporting. Another commenter requested that the final regulations refine the definition of specified service trade or business in § 1.199A-5 for section 224 purposes by providing objective criteria for the term, “reputation or skill,” defining the terms “appearance at an event” and “well known,” and adopting a de minimis safe harbor so that occasional demonstrations or media moments while working for a non-specified service trade or business employer do not trigger specified service trade or business classification. The commenter also recommended that the final regulations clarify whether a person who is not “well-known” and working for a non-specified service trade or business employer at an event may nevertheless trigger tip disqualification if they make an incidental specified service trade or business “appearance.”

The deduction for qualified tips is a newly enacted provision and taxpayers receiving tips in 2025 are determining their eligibility for the deduction for the first time. As stated in Notice 2025-69, the Treasury Department and the IRS understand that it may be difficult for taxpayers to determine whether their tips were received in the course of a specified service trade or business. This may be particularly difficult for employees, since section 224(d)(2) provides that this determination turns on whether the trade or business of their employer in the course of which they receive tips is a specified service trade or business. In light of these considerations, Notice 2025-69 provided transition relief for taxpayers regarding the requirement that qualified tips must not be received in the course of a specified service trade or business. In the interest of sound tax administration, Notice 2025-69 provided a transition period for purposes of IRS enforcement and administration with regard to the specified service trade or business requirement. Specifically, the Notice stated that, until January 1 of the first calendar year following the issuance of final regulations regarding the determination of whether a trade or business is a specified service trade or business for purposes of section 224 and associated employer information reporting, the IRS will treat taxpayers (both employees and self-employed individuals) as having received tips in the course of a trade or business that is not a specified service trade or business if the taxpayer is in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary. The Notice further provided that the Treasury Department and the IRS intend to issue proposed regulations and solicit public comment on these issues before publishing final regulations. The final regulations do not address the specified service trade or business exclusion under section 224, but subsection (g) of § 1.224-1 is reserved for guidance on this exclusion.

7. Comments Concerning Amounts Received for Illegal Activities, Pornography, and Prostitution

The proposed regulations would have provided that any amount received for a service the performance of which is a felony or misdemeanor under applicable law is not a qualified tip. The proposed regulations would have further excluded from the definition of qualified tips, any amount received for prostitution services and any amount received for pornographic activity.

Some commenters supported these exclusions, and one commenter requested that this exclusion be expanded to include amounts paid to strippers, exotic dancers, or other sexually suggestive performers who dance solely for the purposes of provocation. Several other commenters objected to the exclusions, arguing that the Treasury Department and the IRS lack authority to impose these restrictions. In addition to noting that certain pornography is legal, some commenters stated that pornography is protected First Amendment speech, that these businesses pay taxes, and that in fairness these businesses and their employees should have access to the deduction for qualified tips. One commenter suggested the prohibition be limited to activity that is unlawful under State or Federal law. Several commenters requested that the regulations define pornographic activity.

Section 224(d)(2)(C) provides an amount received by an individual is not a qualified tip unless “such other requirements as may be established by the Secretary in regulations or other guidance are satisfied.” The exclusion from qualified tips for illegal activities, prostitution services, and pornographic activities falls under the authority granted to the Treasury Department and the IRS in section 224(d)(2)(C) and (g), and these provisions remain unchanged in the final regulations. This exclusion is intended to address the potential for greater noncompliance and abuse with respect to these activities and services. The Treasury Department and the IRS will consider whether to provide additional guidance regarding these exclusions.

One commenter noted that State-legal cannabis industry workers operate in regulated, State-compliant industries and should not be excluded merely because their employers engage in commerce that involves a federally classified controlled substance. Workers in the cannabis industry must meet statutory and regulatory requirements like any other employee to be eligible for the deduction for qualified tips. Tips received by these workers must be received in an occupation that is included on the List of Occupations that Receive Tips and must not be received for a service the performance of which is a felony or misdemeanor under applicable law, including under Federal law, to be qualified tips eligible for the deduction under section 224. Currently, Federal law and many State laws generally make it unlawful to manufacture, distribute, dispense, or possess marijuana. If Federal law changes, making certain marijuana-related transactions legal, and those same transactions are legal under State law, then tip amounts received in such transactions may be qualified tips if all other requirements for qualified tips are met. No change was made in the final regulations in response to this comment.

8. Anti-Abuse Rules

Section 224(g) provides that, “[t]he Secretary shall prescribe such regulations or other guidance as may be necessary to prevent reclassification of ( printed page 19038) income as qualified tips, including regulations or other guidance to prevent abuse of the deduction allowed by this section.” Under this authority and to prevent reclassification of income as qualified tips and other abuses, the proposed regulations would have provided that a payment is not a qualified tip if the tip recipient has an ownership interest in or is employed by the payor of the tip. Further, section 224(d)(2)(A) defines “qualified tips” as amounts that are, among other things, “determined by the payor.” The proposed regulations would have reiterated this rule as part of the requirement that qualified tips be voluntary.

Several commenters suggested providing additional rules to prevent recharacterization of non-tip income to tip income. One commenter noted that the regulations contain no bright-line anti-abuse tests, specific prohibitions, or illustrative examples that delineate permissible versus impermissible practices and suggested there should be a bright line test that triggers disallowance. Another commenter suggested broadening the definition of qualified tips under the proposed regulations to include an anti-recharacterization provision that states that an amount is not a “qualified tip” if, based on all the facts and circumstances, it represents an arrangement to replace or suppress wages, or attempts to reclassify service charges or wages as tips for the purpose of obtaining the deduction. Another commenter asked that “tips” or gratuities be very specifically defined so that performance bonuses for professional services are not included. One commenter recommended concrete standards, evidentiary benchmarks, or examples that would deter artificial recharacterization, guide audit selection procedures, and state what indicators auditors would look for and what type of documentation would be required.

Other commenters suggested modifications to the rule prohibiting qualified tips from being paid to individuals with an ownership interest in the payor and to employees of the payor. One commenter suggested that an example of a non-abusive situation in which an employee's employer is the payor of a tip would be when an employee is employed by two unrelated employers, one for a tipped occupation and one for a non-tipped occupation, and the employer for the non-tipped occupation tips the employee for services provided by the employee in the tipped occupation. The commenter suggested that the final regulations limit the rule by providing a narrow definition of “ownership interest” that excludes de minimis or incidental holdings, and by limiting the application of the rule to situations where the tipped worker knows, or reasonably should know, that the ultimate source of funds is their employer.

The Treasury Department and the IRS agree that additional clarity on the prohibition against reclassification of income as qualified tips would be helpful. To that end, the final regulations replace the provision prohibiting ownership in or employment by a payor with a provision stating that an amount is not a qualified tip, and thus not eligible for the deduction if, based on all relevant facts and circumstances, the amount represents a recharacterization of wages or payments for goods or services for purposes of claiming the deduction. The final regulations further provide that facts and circumstances that may indicate a recharacterization of wages, payment for services, or other income as tips include:

  • A charge for services provided in an invoice is less than the payment from the payor shown on a related receipt or information return, and the cash tip reported on the receipt or information return is in an amount that approximates the difference between the charge amount on the invoice and payment amount on the receipt or information return; and

  • A significant shift in historical tipping or payment practices between the payor and the tip recipient.
    In addition, the final regulations provide that if the following facts and circumstances are present, there is an irrebuttable presumption that the amount paid reflects a recharacterization of wages, payment for services, or other income as tips, and therefore cannot be a qualified tip:

  • The employer of an employee is the payor, as defined in § 1.224-1(c)(5) of the final regulations, of a cash tip received by the employee.

  • The tip recipient has a direct ownership interest in the payor, as defined in § 1.224-1(c)(5) of the regulations, of a cash tip.
    The final regulations define ownership interest to mean, in the case of a corporation, ownership (by vote or value) of five percent or more of the stock in such corporation; in the case of a partnership, ownership of five percent of the profits interest or capital interest in such partnership, or in any other case, ownership of more than five percent of the beneficial interests in the entity. An ownership interest is tested as of the date the tip is received. The final regulations also provide that an ownership interest is a direct ownership interest if it is an ownership interest held directly by the tip recipient or if it is an ownership interest held through an entity disregarded as separate from its owner for Federal income tax purposes; an ownership interest held through a qualified subchapter S subsidiary as defined in section 1361(b)(3) of the Code; an ownership interest held through a grantor trust (under subpart E of part 1 of subchapter J of charter 1 of the Code); or an ownership interest held through a custodian, broker, nominee, agent, or other similar intermediary.

Because of its potential for abuse, the final regulations provide no specific exceptions for the situation in which an employee has more than one employer, and the employer unrelated to the tipped occupation provides a tip to the employee.

Per the suggestion that “tips” be very specifically defined, the final regulations adopt the definition of tips from the proposed regulations. Under this definition, tips are amounts paid by customers for services that are in excess of the amount agreed to, required, charged, or otherwise reasonably expected to have to be paid for the services in an arm's-length transaction. An amount that meets this definition (whether labeled as a performance bonus for services or otherwise) is a tip for purposes of the deduction under section 224. Whether the tip is a qualified tip depends on whether the other requirements under section 224 and these final regulations are satisfied. Concerning the audit selection procedure suggestions, as noted earlier, audit selection and other IRS enforcement procedures are beyond the scope of these regulations.

One commenter requested confirmation that a tip received directly from a customer by a single-member limited liability company (LLC) or sole proprietor will not be disallowed merely because the entity could be viewed as making the payment to the individual owner. In response to this comment, and to provide clarity concerning who is considered the payor of a tip, the final regulations define the term “payor” as the ultimate recipient of the services which, in most cases, is the customer, client, or other service recipient. The final regulations further clarify that an entity, such as an employer, a third party settlement organization, or a sole proprietorship or single-member LLC through which a tip recipient is doing business, that acts merely as conduit to remit a tip initially paid by a customer, client, or service recipient to the tip recipient, is not a payor of the tip for ( printed page 19039) purposes of these regulations. Finally, the final regulations clarify that statements furnished to a sole proprietorship or a single-member LLC that does not elect to be treated as a corporation for income tax purposes owned by a tip recipient are considered to be furnished to the tip recipient owner of the sole proprietorship or single-member LLC to which the statement was issued, regardless of whether the name of the sole proprietorship or single-member LLC appears as the recipient on the statement. [17 ]

9. Tip-Sharing Arrangements

Section 224(d)(3) defines cash tips to include “tips received under any tip-sharing arrangement.” Consistent with this definition, the proposed regulations would have defined cash tips to include “tips received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool.”

Some commenters requested more guidance on tip-sharing arrangements. One commenter asked that the final regulations distinguish between a voluntary customer tip received by an employee, a mandatory service charge imposed by the employer, and an employer-mandated tip pool that redistributes tips. The definition of cash tips in the proposed regulations would have included both tips received through “a mandatory or voluntary tip-sharing arrangement,” and this is consistent with the broad statutory language that defines cash tips to include tips received under any tip-sharing arrangement. The final regulations contain similar language with nonsubstantive revisions.

One commenter asked for more guidance concerning staff who participate in tip-sharing arrangements but who may not be listed specifically in the List of Occupations that Receive Tips. The Treasury Department and the IRS considered the language in section 224(d)(3) to indicate that, for purposes of the deduction for qualified tips under section 224, there is no distinction between employees in occupations receiving tips directly from customers and employees in occupations receiving tips through tip-sharing arrangements with other employees. However, the employee must still receive the tips in an occupation that customarily and regularly received tips on or before December 31, 2024. Participation in a tip-sharing arrangement by itself is not sufficient. The employee must also be in an occupation on the List of Occupations that Receive Tips, and all other statutory and regulatory requirements must be met. No additional language was added to the final regulations to address this comment.

A few commenters were concerned about State laws on tip-sharing arrangements such as tip pooling. One commenter wanted the regulations to clarify that employees on the List of Occupations that Receive Tips are eligible for the deduction, even if they work in a State that prohibits or restricts tip pooling. Another commenter requested that the regulations provide that they preempt State laws concerning tip pooling. Nothing in section 224 prohibits an individual from claiming the deduction because of State law involving tip-sharing arrangements such as tip pooling. However, section 224 is a Federal income tax deduction. It does not impact Federal or State laws concerning tip-sharing arrangements. Since these rules are a function of existing laws and outside the scope of these regulations, no language was added to the final regulations concerning this comment.

10. Married Individuals and Social Security Numbers

Section 224(b)(1) limits the deduction for qualified tips to an amount not to exceed $25,000 in a taxable year. Section 224(b)(2) further limits the amount of the deduction based on a taxpayer's modified adjusted gross income, with the deduction phasing out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). Section 224(f) provides that if the taxpayer is a married individual within the meaning of section 7703, section 224 applies only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.

Reflecting these statutory provisions, the proposed regulations would have provided that the total amount of qualified tips that can be deducted on a return per calendar year is $25,000, regardless of filing status. After applying the $25,000 limitation, the proposed regulations would have provided that the amount is subject to the phase-out based on the taxpayers' modified adjusted gross income described in section 224(b)(2). Finally, the proposed regulations would have provided that taxpayers who are married must file a joint return to claim the deduction allowed by section 224.

Several commenters asserted that the $25,000 maximum annual deduction should apply per spouse on a joint return. They argued that limiting the deduction to $25,000 in this instance penalizes married individuals and unfairly disadvantages joint filers when both spouses work in tipped occupations. These commenters also noted that households with two tipped workers face higher work-related costs and should have a higher cap. At least one commenter agreed with the position in the proposed regulations that the maximum deduction should be limited to $25,000 per return, regardless of filing status.

Section 224(b)(1) limits the amount of the deduction to $25,000 for any taxable year, without reference to filing status. Consistent with this statutory language, the final regulations maintain the position of the proposed regulations that the maximum annual deduction for an individual or a joint return is $25,000.

One commenter asked that the IRS consider indexing this threshold to updated cost-of-living and inflation factors or increasing the threshold outright to $200,000/$300,000 to ensure the deduction effectively benefits the intended middle-class earners and families. Because such indexing is not provided for in section 224, the final regulations do not include this suggestion.

One commenter opposed requiring married individuals to file jointly in order to be eligible for the deduction. Because section 224(f) requires married individuals to file jointly in order to be eligible for the deduction, the final regulations retain this rule.

In accordance with section 224(e), the proposed regulations would have provided that to claim a deduction under section 224, a taxpayer must include on the taxpayer's tax return a valid for work SSN (valid SSN) that was issued before the due date of the return (including extensions). The proposed regulations would have further provided that married taxpayers are required to include the valid SSN of the taxpayer who has received the tips to claim the deduction, and a valid SSN is required of both taxpayers only when both have qualified tips for which the deduction is being claimed.

One commenter stated that the SSN requirement risks disproportionate exclusion of immigrant and informal workers and could incentivize ( printed page 19040) underreporting or off-the-books arrangements and suggested providing an Individual Taxpayer Identification number (ITIN) safe harbor illustration. Another commenter said that the IRS should not impose a requirement that both spouses use SSNs. Finally, one commenter asked that the regulations include easy examples showing what to do when only one spouse receives tips and what to keep on file if someone moves from ITIN to SSN during the year, so they do not lose the deduction.

The valid SSN requirements are statutory. Consistent with these statutory provisions, the final regulations contain the same requirements as the proposed regulations. Income tax return instructions will include information and examples for how to claim the deduction, including how married taxpayers filing jointly claim the deduction if just one spouse has tip income. If a taxpayer is issued a valid SSN for the calendar year in which the taxpayer is claiming the deduction under section 224, the taxpayer may use all qualified tips received in that calendar year in determining the deduction, as long as the taxpayer includes the valid SSN on the taxpayer's return for that year. The final regulations reflect this clarification.

Another commenter suggested that the regulations explicitly bar noncitizens from being eligible for the section 224 deduction. Section 224(e) prohibits the deduction unless the taxpayer's valid SSN is listed on the return claiming the deduction. As the proposed regulations would have done, the final regulations include this prohibition. However, certain noncitizens are eligible to obtain valid SSNs and therefore would be eligible for the section 224 deduction.

11. Self-Employed Individuals

In accordance with 224(c), the proposed regulations provide that generally for self-employed taxpayers, the deduction under section 224 for a trade or business is limited to the individual's net income (without regard to the section 224 deduction) from that trade or business.

Several commenters had questions concerning how to determine net income for purposes of section 224(c). One commenter asked that the regulations confirm that the deduction cannot create or increase a loss. Another commenter requested that the regulations explicitly state whether the self-employed health insurance deduction, the one-half of self-employment tax deduction, and the self-employed retirement deduction are allocable to the trade or businesses for purposes of section 224(c). Another commenter requested precise guidance, with illustrative examples, on how “net income” should be calculated for a sole proprietor filing Schedule C, specifically clarifying whether this figure is before or after the deduction of ordinary and necessary business expenses (like booth rent, supplies, and self-employment tax).

Consistent with section 224(c), the proposed regulations would have provided that the section 224 deduction cannot create or increase a loss. Whether any particular deduction, such as the self-employed health insurance deduction, the one-half of self-employment tax deduction, and the self-employed retirement deduction, is allocable to a trade or business for purposes of section 224(c) is a question that is beyond the scope of these regulations. However, section 224(c) is clear that the qualified tip deduction is not allocable to a trade or business for purposes of this section. For any individual performing services in a trade or business (other than as an employee), such as a sole proprietor filing a Schedule C, the deduction for qualified tips under section 224 for that trade or business is limited to the amount remaining after gross income from the trade or business, including the qualified tips received in the course of the trade or business, is reduced by the deductions allocable to the trade or business in which the tips are received, which, in the case of a sole proprietor filing a Schedule C, would include the expenses deducted on the Schedule C for that trade or business.

Some commenters had general questions about independent contractors. One commenter stated that gig workers who are considered independent contractors should qualify for this deduction as the tips are a part of the job. Another commenter asked that the regulations provide a short example involving an independent contractor with more than one occupation (for example, at a salon and a separate makeup service) to demonstrate how to allocate tips and apply the $25,000 deduction maximum. One commenter asked that the regulations provide formal transition relief for self-employed individuals allowing for a “reasonable estimate” of qualified tips received between January 1, 2025, and the publication date of the final rule.

Gig workers can qualify for this deduction if their occupation is on the List of Occupations that Receive Tips and the other statutory and regulatory requirements of section 224 are met. The $25,000 maximum deduction is applied per tax return and is not applied separately to different occupations for a taxpayer, or spouses in the case of spouses filing jointly, with multiple occupations. Instructions for how to apply the $25,000 maximum deduction limitation when claiming the deduction are beyond the scope of these regulations but will be provided in instructions to income tax returns. Transition relief for individuals claiming the deduction under section 224 in tax year 2025 is provided in Notice 2025-69. Because these comments are addressed elsewhere in the final regulations, as well as in other guidance, no additional changes were made to the final regulations to address these comments.

12. Other Comments

A few commenters asked that the final regulations address certain situations where children receive tips. One commenter suggested that the regulations address child digital content creators and the deduction's applicability as it relates to parents claiming the income of their social media influencer children. Another commenter suggested rules that exclude parents who “tip” their child's business with large amounts to effectively increase gift tax (and similar tax) exemption limits. These comments are beyond the scope of these regulations. Nothing in section 224 nor these regulations change the rules governing the reporting and treatment of income received by children or the rules regarding gift taxes.

13. Severability

If any provision in this rulemaking is held to be invalid or unenforceable facially, or as applied to any person or circumstance, it shall be severable from the remainder of this rulemaking, and shall not affect the remainder thereof, or the application of the provision to other persons not similarly situated or to other dissimilar circumstances.

Applicability Dates

These regulations apply for taxable years beginning after December 31, 2024. As stated in the NPRM, taxpayers may rely on the proposed regulations for taxable years beginning after December 31, 2024, and on or before the date these regulations are published as final regulations in the Federal Register, provided that taxpayers follow the proposed regulations in their entirety and in a consistent manner. ( printed page 19041)

Special Analyses

I. Regulatory Planning and Review—Economic Analysis

Executive Orders 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility.

The final regulations have been designated by the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (MOA, July 4, 2025) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations. OIRA has determined that the final rulemaking is economically significant under section 3(f)(1) of Executive Order 12866 and subject to review under Executive Order 12866 and section 1(c) of the Memorandum of Agreement. Accordingly, the final regulations have been reviewed by OMB.

Need for Regulation

Section 70201 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One Big Beautiful Bill Act (OBBBA), adds new section 224 to the Internal Revenue Code, [18 ] which provides an income tax deduction for “qualified tips” that are reported on Internal Revenue Service (IRS) returns and various forms. The statute requires, under section 70201(h) of the OBBBA, that not later than 90 days after the date of enactment of OBBBA, the Secretary of the Treasury or the Secretary's delegate (Secretary) publish a list of occupations that customarily and regularly received tips on or before December 31, 2024, for purposes of defining the term “qualified tips” under section 224(d)(1).

The final regulations clarify the definition of “qualified tips” for purposes of the income tax deduction under section 224. As required by section 70201(h) of the OBBBA, the final regulations also provide the list of occupations that customarily and regularly received tips on or before December 31, 2024 (List of Occupations that Receive Tips). The purpose of these final regulations is to provide guidance on requirements of section 224 to claim the deduction, including the definition of “cash tips;” the requirement for the taxpayer to include on the tax return for the taxable year such individual's Social Security number (SSN); and the requirement that if the taxpayer is married (within the meaning of section 7703), that section 224 shall apply only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year. The final regulations also clarify that the deduction is limited to $25,000, regardless of the taxpayer's filing status, and that the deduction is reduced based on the taxpayer's modified adjusted gross income for that taxable year after applying the $25,000 limitation.

I. The Statute and Final Regulations

For taxable years beginning after December 31, 2024, and before January 1, 2029, employees and self-employed individuals may deduct qualified tips from their gross income when calculating their federal income tax liability. Section 224(d)(1) defines the term “qualified tips” to mean cash tips received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary.

Section 224(d)(3) defines the term “cash tips” for the purposes of section 224(d)(1) to include tips received from customers that are paid in cash or charged and, in the case of an employee, tips received under any tip-sharing arrangement. The final regulations clarify that “cash tips” are amounts received, directly or indirectly, from customers, including in the case of an employee, tips received through a mandatory or voluntary tip-sharing arrangement, that are paid in a cash medium of exchange, including by check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash (such as casino chips), and any other form of electronic settlement or mobile payment application that is denominated in cash. The final regulations also clarify that, for the purposes of section 224, cash tips also include amounts paid in foreign currency. Cash tips do not include items paid in any medium other than cash or charge, such as event tickets, meals, services, or other assets that are not exchangeable for a fixed amount in cash. For purposes of section 224, cash tips also do not include digital assets as defined in section 6045(g)(3)(D) and § 1.6045-1(a)(19).

Section 224(a) allows qualified tips to be deducted if they are included on Form W-2, “Wage and Tax Statement;” Form 1099-NEC, “Nonemployee Compensation;” Form 1099-K, “Payment Card and Third Party Network Transactions;” Form 1099-MISC, “Miscellaneous Information;” or Form 4137, “Social Security and Medicare Tax on Unreported Tip Income.” The final regulations clarify that statements furnished to a sole proprietorship or a single-member LLC owned by a tip recipient are considered furnished to the tip recipient owner of the sole proprietorship or a single-member LLC to which the statement was issued, regardless of whether the name of the sole proprietorship or single-member LLC appears as the recipient on the statement.

In addition, employees that enter a Tipped Employee Participation Agreement as part of the IRS Tip Rate Determination Agreement (TRDA) program or a Model Gaming Employee Tip Reporting Agreement as part of the IRS Gaming Industry Tip Compliance Agreement (GITCA) program report their tips according to tip rates established under their agreement (and these tips are included on Form W-2). The final regulations clarify that the term “qualified tips” for employees participating in the TRDA or GITCA program includes tips reported using the tip rates established under their agreement and additional tips reported on Form 4137.

The final regulations clarify that the section 224(d)(2)(A) term “qualified tips” only includes amounts that are paid by the customer voluntarily without any impact on the scope or cost of service or any other consequence in the event of nonpayment, are not the subject of negotiation, and are determined by the customer. The final regulations also clarify that the term “qualified tips” does not include tips that were received while performing a service that is a felony or misdemeanor under applicable law. (However, “qualified tips” may include tips received for a service that is legal but while working for an establishment that violates applicable law in other respects.) In addition, the final regulations provide that amounts received for prostitution services and pornographic activity are not included in the definition of “qualified tips.” The final regulations provide that amounts received by a manager or supervisor through a voluntary or mandatory tip-sharing arrangement such as a tip pool are not qualified tips, but amounts received directly by a supervisor or manager for services provided in the ( printed page 19042) course of duties performed in an occupation included on the List of Occupations that Receive Tips are qualified tips if all other regulatory requirements are met. The final regulations also clarify that a payment is not considered a “qualified tip” if, based on all relevant facts and circumstances, the payments represent a recharacterization of wages or payments for services as tips for purposes of claiming the deduction under section 224. Furthermore, the final regulations provide that if the following facts and circumstances are present, there is an irrebuttable presumption that the amount paid is a recharacterization of wages, payment for services, or other income as tips, and therefore cannot be a qualified tip: (A) the employer of an employee is the payor of a cash tip received by the employee; or (B) the tip recipient has a direct ownership interest in the payor of a cash tip.

Section 224(c) limits the deduction for qualified tips received by a self-employed individual to the gross income (including the qualified tips) from their trade or business minus the sum of their deductions (other than the deduction for qualified tips) that are allocable to that trade or business. The final regulations clarify that the deduction for qualified tips is not included when calculating this limit because it is not a trade or business deduction.

The final regulations clarify the requirement in section 224(e) that taxpayers must include their SSN (as defined in section 24(h)(7)) on their tax return to claim the deduction for qualified tips. Taxpayers with an Individual Taxpayer Identification Number (ITIN) rather than an SSN will not be able to use their tips to claim the deduction under section 224. The final regulations also clarify that a taxpayer must be issued an SSN, as defined in section 24(h)(7) of the Code, before the due date of the income tax return (including extensions) for the calendar year in which the taxpayer is claiming the deduction under section 224. Married taxpayers must include the SSN of the taxpayer who earned the qualified tips that are being used to claim the deduction; if both spouses earned qualified tips for the deduction, then they must include the SSNs of both spouses on their tax return. The final regulations clarify section 224(f), which requires married individuals (within the meaning of section 7703) to file a joint tax return for the taxable year to claim the deduction for qualified tips.

Section 224(b)(1) limits the deduction for qualified tips for any taxable year to $25,000. The final regulations clarify that this limitation applies regardless of the taxpayer's filing status for that taxable year. Under section 224(b)(2)(A), the deduction for qualified tips is reduced (but not below zero) by $100 for each $1,000 by which the taxpayer's modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 in the case of a joint return). Section 224(b)(2)(B) defines “modified adjusted gross income” for the purposes of this phaseout as adjusted gross income of the taxpayer for the taxable year plus any amount excluded from gross income under section 911, section 931, or section 933. The final regulations clarify that the phaseout based on MAGI is applied after applying the $25,000 limit to the deduction.

The final regulations implement the statutory requirement from section 70201(h) of the OBBBA that the Secretary publish a list of occupations that customarily and regularly received tips on or before December 31, 2024. For each occupation, the list provides a numeric Treasury Tipped Occupation Code (TTOC), an occupation title, a description of the types of services performed by individuals working in the occupation, illustrative examples of specific occupations that would be included, and the Standard Occupation Classification (SOC Code) that is related to the occupation. The final regulations also clarify that these occupations include individuals acting as assistants or apprentices to the listed occupations to the extent they perform the described services.

II. Baseline

The Treasury Department and the IRS have assessed the benefits and costs of the final regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the absence of these final regulations.

III. Affected Entities and Taxpayers

By providing clarity to the statutory definition of “qualified tips” and publishing the statutorily required list of occupations that customarily and regularly received tips on or before December 31, 2024, the final regulations affect taxpayers who wish to claim the deduction for qualified tips on their individual income tax returns beginning in taxable year 2025. Using confidential tax return data, the Treasury Department and the IRS estimate that, in 2026, more than 10 million returns will have tips reported on Form W-2, Form 1099-NEC, Form 1099-K, Form 1099-MISC, or Form 4137.

IV. Economic Effects of the Final Regulations

The Treasury Department and the IRS analyzed the economic effects of the final regulations in enumerating the list of occupations that customarily and regularly received tips on or before December 31, 2024, the clarification that “qualified tips” excludes tips received while performing services that are misdemeanors or felonies under applicable law, and the clarification that “qualified tips” for employees under tip agreements through the TRDA or GITCA programs include tips reported using the tip rates established under their agreement and additional tips reported on Form 4137. The projected economic costs and benefits of these final regulations are small.

i. List of Occupations That Receive Tips

The final regulations enumerate the List of Occupations that Receive Tips, as described in section 70201(h) of the OBBBA. Providing this list will provide clarity for taxpayers who are expected to receive qualified tips. While these clarifications will reduce uncertainty, the Treasury Department and the IRS project that the magnitude of the efficiency gains from publishing these final regulations would be small.

a. Methodology

To create the List of Occupations that Receive Tips, the Treasury Department and the IRS examined confidential income tax return data from tax year 2023; data from the GITCA and related programs; the House Budget Committee report on the OBBBA, H.R. Rept. No. 119-106, at 1502 (2025); guidance and caselaw related to the U.S. Department of Labor (DOL) Fair Labor Standards Act (FLSA); and survey data from the Panel Study of Income Dynamics (PSID) for years 2017, 2019, and 2023 (which asks about the occupation of and tip income received by individuals in 2016, 2018, and 2022, respectively). Based on prior guidance under the FLSA, the Treasury Department and the IRS determined that individuals must have received cash tips more often than occasionally (for example, not only on annual holidays or other celebrations) during a calendar year ending on or before December 31, 2024, in order for their occupation to be considered as having customarily and regularly received tips on or before December 31, 2024.

While reviewing the data, the Treasury Department and the IRS recognized that the occupations identified as having customarily and regularly received tips on or before December 31, 2024, were in the service ( printed page 19043) industry, and the individuals working in the occupations either interacted with the customers for whom they were providing a service or commonly participated in tip-sharing arrangements with individuals who interacted with customers.

The List of Occupations that Receive Tips includes some occupations, such as cooks and dishwashers, in which individuals may not interact with customers but reported receiving tip income, presumably from tip-sharing arrangements with individuals who do interact with customers. Employees in these occupations have not been considered to customarily and regularly receive tips under the FLSA. As discussed above, there are many differences between the specific language, purpose, and history of the FLSA tip provisions and the language, purpose, and history of the deduction for qualified tips under section 224 of the Code. [19 ] For instance, while the FLSA contemplates that an employee must have some level of customer interaction to “customarily and regularly” receive tips, [20 ] section 224(d)(3) provides that for purposes of the deduction for qualified tips under section 224, “cash tips” includes both tips received from customers and, in the case of an employee, tips received under any tip-sharing arrangement. As a result, occupations in which employees receive tips from tip-sharing arrangements are considered as having “customarily and regularly” received tips for purposes of the deduction for qualified tips under section 224.

After identifying the occupations that customarily and regularly received tips on or before December 31, 2024, the Treasury Department and the IRS created a categorization system to organize and define the occupations for purposes of the deduction for qualified tips. Each occupation was assigned a TTOC, an occupation title, a short description of the types of services performed by individuals working in the occupation, illustrative examples of specific occupations that would be included under the occupation code, and the related SOC Code(s).

b. Alternative Methods Considered

In addition to the method described above, the Treasury Department and the IRS considered two alternative methods for creating the List of Occupations that Receive Tips. These alternative methods were (1) using the SOC Code system to define occupations and (2) using only the confidential income tax return data to identify occupations that reported tips. These alternative methods both excluded some occupations that did customarily and regularly receive tips on or before December 31, 2024, and also included some occupations that did not in reality customarily and regularly receive tips on or before December 31, 2024. Therefore, the approach to produce the List of Occupations that Receive Tips included in these final regulations was selected over the alternatives described below.

One of the alternative methods that the Treasury Department and the IRS considered to construct the List of Occupations that Receive Tips was to use the occupation definitions from the SOC Code system. [21 ] However, the Treasury Department and the IRS determined that several of the detailed SOC occupations were not sufficiently detailed to separate occupations that should be included on the List of Occupations that Receive Tips, from those that should not. For example, the SOC Code for “Animal Caretakers” is described in the 2018 SOC Code system as an occupation in which individuals “provide care to promote and maintain the well-being of pets and other animals that are not raised for consumption.” The specific occupations that are provided as illustrative examples for this SOC Code include both pet caretakers and zookeepers. Pet caretakers provide a service to individual customers, personally interact with customers, and commonly receive tips on a frequent basis. Therefore, they would be considered an occupation that customarily and regularly receives tips. Zookeepers, on the other hand, provide a service to animals but not directly to customers. Many, if not most, zookeepers do not interact with zoo customers, and zookeepers do not receive tips on a frequent basis. Zookeeper is therefore not an occupation that customarily and regularly receives tips. Thus, if the “Animal Caretakers” SOC Code were included in the list of occupations that customarily and regularly receive tips, then zookeepers would become part of the list via their corresponding SOC Code, even though they do not customarily and regularly receive tips. Thus, using the SOC Code system alone was not sufficient for creating the List of Occupations that Receive Tips.

For the method that was selected instead of using the SOC Code system, the Treasury Department and the IRS created a new categorization system. The descriptions and illustrative examples for the occupation codes in this new system often mirror their SOC Code counterparts, and it includes the SOC Code(s) that are related to each TTOC occupation. Of the 867 detailed SOC Codes in the 2018 SOC Code system, 77 are related to at least one TTOC occupation.

A second alternative method that the Treasury Department and the IRS considered was to use only confidential income tax return data to identify occupations that customarily and regularly received tips on or before December 31, 2024. This data includes reported tips from Form W-2 and Form 4137 and the occupation that the taxpayer (the primary filer and, if married filing jointly, the spouse) self-reports next to their signature on Form 1040. Individuals in some occupations, such as rideshare drivers, often operate as independent contractors rather than employees and do not receive Form W-2 or file Form 4137. Thus, using only the income tax return data would have omitted these occupations, even though individuals in such occupations did in fact regularly and customarily receive tips on or before December 31, 2024. In addition, the analysis of the income tax return data may have incomplete information on certain occupations due to variations in how taxpayers choose to self-report their occupation on Form 1040. For example, the self-reported occupation may have typos or abbreviations, or taxpayers may write multiple occupations separated by a comma or a slash mark, like “Occupation 1/Occupation 2.” [22 ] These variations in how taxpayers reported ( printed page 19044) their occupation on Form 1040 made it difficult for the data analysis to capture all taxpayers with a given occupation (in the sense of what job they actually performed, rather than what they wrote on the Form 1040) together. This was particularly problematic for certain occupations that have more variations in how they were reported.

Due to these limitations, the Treasury Department and the IRS rejected the method of only using the tax return data to create the List of Occupations that Receive Tips. Instead, the tax return data was supplemented with data from the GITCA and related programs; the House Budget Committee report on the OBBBA, H.R. Rept. No. 119-106, at 1502 (2025); guidance and caselaw related to the DOL FLSA; and survey data from the PSID.

c. Statistics on Reported Tip Income in Tax Return Data

Table A below contains the List of Occupations that Receive Tips and statistics on their reported tip income. The table is organized by Treasury Tipped Occupation Code (TTOC) and contains the TTOC Occupation Title and the Related Standard Occupation Classification (SOC) Code(s) (Related SOC Code(s)). (As previously described, the List of Occupations that Receive Tips in Table 1 of the final regulations also includes descriptions and illustrative examples of each TTOC occupation.) Table A summarizes taxpayer information from Tax Year 2023 on employees who have a single job, meaning they received only one Form W-2; did not file Schedule C, “Profit or Loss from Business (Sole Proprietorship),” or Schedule F, “Profit or Loss From Farming;” and did not have non-passive income from a partnership or an S-corporation on Schedule E, “Supplemental Income and Loss (From rental real estate, royalties, partnerships, S corporations, estates, trusts, real estate mortgage investment conduits, etc.).” [23 ]

Table A shows the percentage of individuals within the Related SOC Code(s) [24 ] who have at least $100 of tips reported on Form W-2 or Form 4137. For example, 82.8 percent of individuals who had the SOC Code related to the TTOC Occupation Title of “Bartenders” had at least $100 of tips reported on Form W-2 or Form 4137.

The table shows the amount of reported tips of individuals in the Related SOC Code(s) as a percentage of all reported tips. The numerator of the percentage is the amount of reported tips of individuals in the Related SOC Code(s) who had any tips reported on Form W-2 or Form 4137. The denominator is the amount of reported tips of all individuals, regardless of whether their occupation could be mapped to a SOC Code or if their SOC Code is related to a TTOC. For example, 34.3 percent of all reported tips are from individuals who had the SOC Code related to the TTOC Occupation Title of “Wait Staff.”

Lastly, Table A shows reported tips as a percent of wage compensation for individuals in Related SOC Code(s) who had reported tips. Wage compensation is the sum of wages, tips, and other compensation reported in Box 1 of Form W-2 and unreported tips from line 4 of Form 4137. For example, among individuals with SOC Codes related to the TTOC Occupation Title of “Gambling Dealers” who had reported tips on Form W-2 or Form 4137, reported tips were 70.7 percent of wage compensation.

| Treasury
tipped
occupation
code
(TTOC) | TTOC
occupation title | Percent
with
reported 

                                tips 1 | Percent of all
                             reported 

                                tips 2 | Reported tips as
                             percent of wages 
                             of tipped 

                                workers 3 | Related standard
                             occupational 
                             classification code 
                             (related SOC code) |

| --- | --- | --- | --- | --- | --- |
| Beverage & Food Service | | | | | |
| 101 | Bartenders | 82.8 | 9.8 | 63.4 | 35-3011 |
| 102 | Wait Staff | 74.5 | 34.3 | 63.5 | 35-3031 |
| 103 | Food or Beverage Servers, Nonrestaurant | 30.4 | 0.1 | 33.0 | 35-3041 |
| 104 | Dining Room and Cafeteria Attendants and Bartender Helpers | 38.9 | 1.0 | 44.8 | 35-9011 |
| 105 | Chefs and Cooks | 12.8 | 2.0 | 17.1 | 35-1011, 35-2011, 35-2013, 35-2014, 35-2019 |
| 106 | Food Preparation Workers | 21.4 | 3.3 | 33.5 | 35-1012, 35-2021, 35-9099 |
| 107 | Fast Food and Counter Workers | 40.1 | 1.4 | 17.9 | 35-3023 |
| 108 | Dishwashers | 11.0 | 0.1 | 15.8 | 35-9021 |
| 109 | Host Staff, Restaurant, Lounge, and Coffee Shop | 46.3 | 0.8 | 35.3 | 35-9031 |
| 110 | Bakers | 12.0 | 0.1 | 14.7 | 51-3011 |
| Entertainment & Events | | | | | |
| 201 | Gambling Dealers | 70.9 | 4.3 | 70.7 | 39-3011, 39-1013 |
| 202 | Gambling Change Persons and Booth Cashiers | 78.0 | 0.4 | 64.8 | 41-2012 |
| 203 | Gambling Cage Workers | 37.6 | 0.2 | 57.7 | 43-3041 |
| 204 | Gambling and Sports Book Writers and Runners | 30.0 | * | 43.3 | 39-3012 |
| ( printed page 19045) | | | | | |
| 205 | Dancers | 8.8 | * | 54.3 | 27-2031 |
| 206 | Musicians and Singers | 2.9 | * | 36.8 | 27-2042 |
| 207 | Disc Jockeys, Except Radio | 15.7 | * | 44.9 | 27-2091 |
| 208 | Entertainers and Performers | 7.9 | * | 52.0 | 27-2099 |
| 209 | Digital Content Creators | 7.9 | * | 52.0 | 27-2099 |
| 210 | Ushers, Lobby Attendants, and Ticket Takers | 3.1 | * | 11.6 | 39-3031 |
| 211 | Locker Room, Coatroom, and Dressing Room Attendants | 12.0 | * | 19.1 | 39-3093 |
| Hospitality & Guest Services | | | | | |
| 301 | Baggage Porters and Bellhops | 7.0 | 0.1 | 18.6 | 39-6011 |
| 302 | Concierges | 3.7 | * | 11.7 | 39-6012 |
| 303 | Hotel, Motel, and Resort Desk Clerks | 11.7 | 0.7 | 42.8 | 43-4081 |
| 304 | Maids and Housekeeping Cleaners | 2.7 | 0.1 | 10.6 | 37-2012 |
| Home Services | | | | | |
| 401 | Home Maintenance and Repair Workers | 0.5 | 0.1 | 16.1 | 49-9071, 49-9098, 49-9099, 49-9063, 49-2097, 51-7021 |
| 402 | Home Landscaping and Groundskeeping Workers | 0.5 | * | 14.0 | 37-3011 |
| 403 | Home Electricians | 0.1 | * | 10.6 | 47-2111 |
| 404 | Home Plumbers | 0.2 | * | 5.1 | 47-2152 |
| 405 | Home Heating and Air Conditioning Mechanics and Installers | 0.2 | * | 4.0 | 49-9021 |
| 406 | Home Appliance Installers and Repairers | 1.8 | * | 1.9 | 49-9031 |
| 407 | Home Cleaning Service Workers | 2.7 | 0.1 | 10.6 | 37-2012 |
| 408 | Locksmiths | 2.0 | * | 3.1 | 49-9094 |
| 409 | Roadside Assistance Workers | 0.2 | * | 10.8 | 49-3023, 53-3032 |
| Personal Services | | | | | |
| 501 | Personal Care and Service Workers | 0.6 | 0.1 | 31.1 | 31-1122, 39-9099 |
| 502 | Private Event Planners | 6.6 | 0.1 | 18.0 | 13-1121 |
| 503 | Private Event and Portrait Photographers | 2.3 | * | 22.0 | 27-4021 |
| 504 | Private Event Videographers | * | * | * | 27-4031 |
| 505 | Event Officiants | 0.2 | * | 16.8 | 21-2011 |
| 506 | Pet and Show Animal Caretakers | 19.1 | 0.3 | 16.2 | 39-2021 |
| 507 | Tutors | 0.5 | * | 34.5 | 25-3041 |
| 508 | Nannies and Babysitters | 0.7 | * | 28.8 | 39-9011 |
| 509 | Visual Artists | 3.3 | * | 28.4 | 27-1013 |
| 510 | Floral Designers | 4.3 | * | 7.4 | 27-1023 |
| Personal Appearance & Wellness | | | | | |
| 601 | Skincare Specialists | 54.7 | 0.5 | 24.4 | 39-5094 |
| 602 | Massage Therapists | 55.8 | 0.6 | 25.7 | 31-9011 |
| 603 | Barbers, Hairdressers, Hairstylists, and Cosmetologists | 52.4 | 3.2 | 22.7 | 39-5012, 39-5011 |
| 604 | Shampooers | * | * | * | 39-5093 |
| 605 | Manicurists and Pedicurists | 36.2 | 0.3 | 14.9 | 39-5092 |
| 606 | Eyebrow and Eyelash Technicians | 53.2 | 3.0 | 22.6 | 39-5012 |
| 607 | Makeup Artists | 13.1 | * | 14.8 | 39-5091 |
| 608 | Exercise Trainers and Group Fitness Instructors | 1.0 | * | 25.8 | 39-9031 |
| 609 | Tattoo Artists and Piercers | 11.1 | * | 15.8 | 27-1019 |
| 610 | Tailors | 0.8 | * | 15.9 | 51-6052 |
| 611 | Shoe and Leather Workers and Repairers | * | * | * | 51-6041 |
| Recreation & Instruction | | | | | |
| 701 | Golf Caddies | 8.0 | * | 27.9 | 39-3091 |
| 702 | Self-Enrichment Teachers | 1.9 | * | 7.5 | 25-3021 |
| 703 | Recreational and Tour Pilots | * | * | * | 53-2012 |
| 704 | Tour Guides | 14.2 | * | 17.1 | 39-7011 |
| 705 | Travel Guides | 13.3 | * | 16.2 | 39-7012 |
| 706 | Sports and Recreation Instructors | 1.9 | * | 7.5 | 25-3021 |
| ( printed page 19046) | | | | | |
| Transportation & Delivery | | | | | |
| 801 | Parking and Valet Attendants | 17.4 | 0.1 | 21.5 | 53-6021 |
| 802 | Taxi and Rideshare Drivers and Chauffeurs | 24.9 | * | 21.2 | 53-3054 |
| 803 | Shuttle Drivers | 16.7 | 0.1 | 28.0 | 53-3053 |
| 804 | Goods Delivery People | 3.7 | 0.5 | 30.0 | 53-3031 |
| 805 | Personal Vehicle and Equipment Cleaners | 4.8 | * | 12.4 | 53-7061 |
| 806 | Private and Charter Bus Drivers | 0.7 | * | 9.9 | 53-3052 |
| 807 | Water Taxi Operators and Charter Boat Workers | * | * | * | 53-5022 |
| 808 | Rickshaw, Pedicab, and Carriage Drivers | 0.8 | * | 21.4 | 53-6099 |
| 809 | Home Movers | 2.5 | 2.8 | 32.8 | 53-7062 |
| 810 | Gas Pump Attendant | 0.7 | * | 15.4 | 53-6031 |
| Total | | | 67.5 4 | 44.6 | |
| Notes: Data are for Tax Year 2023. An * indicates a share of less than 0.1% or a small cell size. | | | | | |
| 1 Percentage of individuals within the Related SOC Code(s) who have at least $100 of tips reported on a Form W-2 or Form 4137 (“reported tips”). | | | | | |
| 2 Reported tips of individuals in Related SOC Code(s) as a percentage of all reported tips. The denominator includes all individuals regardless of whether their occupation could be mapped to a SOC Code or if their SOC Code is related to a TTOC code. | | | | | |
| 3 Reported tips of individuals in Related SOC Code(s) as a percentage of wages of individuals with tips in Related SOC Code(s). The denominator includes wages of individuals in Related SOC Code(s) only if they report tips. | | | | | |
| 4 Occupation codes are matched to SOC Codes, which are then related to TTOC Occupation Titles, using the self-reported character strings in the “Your occupation” box next to the signature box on the Form 1040. The occupation box does not affect a taxpayer's tax liability, and taxpayers with a single Form W-2 sometimes enter an occupation (character string) that does not correspond to the Form W-2. For example, a student who was also a bartender might have entered “Student” in the occupation box, or they may have misspelled “bartender” as “batrender”. In either case, we would not be able to match the “Student” or “batrender” who received tips to a TTOC code. These data shortcomings are the primary reason that the percentage of all reported tips for occupations listed in the table sum to only 67.4%. | | | | | |
| Source: Office of Tax Analysis, December 18, 2025. | | | | | |

d. Economic Effects

In general, OBBBA granted taxpayers the deduction for income earned in the form of qualified tips. In the absence of the list enumerated by these final regulations, two taxpayers with otherwise similar tax situations would face uncertainty as to whether this tax deduction applies to their situation. In the absence of this guidance, these taxpayers might make different choices as to whether their tips qualify for the deduction, and, therefore, face different tax liability. By enumerating the List of Occupations that Receive Tips, these final regulations ensure that these two taxpayers face the same tax treatment.

Consider an example, where Employee A is a hairstylist and Employee B is a makeup artist, both working at Beauty Salon 1. Employee A and Employee B each receive $10,000 in tips from customers at Beauty Salon 1. The House Budget Committee report on the OBBBA, H. Rept. 119-106, at 1502 (2025) included hairstylists but not makeup artists in its examples of occupations that traditionally and customarily [25 ] received tips on or before December 31, 2024. Thus, prior to reading the guidance in these final regulations, Employee B might have been unsure whether their occupation as a makeup artist makes them eligible to claim the deduction for their qualified tips. By enumerating this list, Employee A and Employee B have clarity that they are both eligible to use the $10,000 in tips that they receive while working at Beauty Salon 1 for purposes of the deduction in section 224 (assuming that all other requirements to claim the deduction are satisfied).

Some taxpayers may reclassify their occupation as described on their Form 1040 to fall under a category that appears on the List of Occupations that Receive Tips. This reclassification would merely be a relabeling of their reported occupation and does not constitute a meaningful economic change. Due to the tax preference granted by the statute, some taxpayers may genuinely change occupations to one which appears on the List of Occupations that Receive Tips. This effect is ascribed to the statute.

ii. Illegal Activity

The final regulations clarify that the term “qualified tips” does not include tips that were received while performing a service that is a felony or misdemeanor under applicable law. For example, tips received while 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 would not be eligible for the deduction for qualified tips. The Treasury Department and the IRS do not have sufficient data to determine the behavioral effects of the clarification that the tips are excluded from the definition of “qualified tips” if they were earned while performing illegal activities. The Treasury Department and the IRS also do not have readily available data and models to assess the economic costs and benefits of excluding these tips from the definition of “qualified tips,” but the economic impact is expected to be low.

For example, consider Employee C who works as a bartender but does not have the license or certification that is required based on the applicable laws, and these laws specify that serving alcohol without a license is a misdemeanor. They receive $10,000 in tips during the year while serving ( printed page 19047) alcohol at a bar. “Bartender” is on the List of Occupations that Receive Tips, but serving alcohol as a bartender without the proper license violates the applicable law. Because the final regulations clarify that the definition of “qualified tips” excludes tips received while performing services that violate the applicable law, Employee C is aware that their $10,000 in tips received while serving alcohol without a license are not qualified tips, and so they cannot claim the deduction for these tips.

Alternatively, consider a different example where Restaurant 2 includes a bar that serves alcohol but does not have the liquor license required by the applicable laws. Employee D works on the wait staff at Restaurant 2 and does not serve alcohol, which the applicable laws allow. Employee D receives $10,000 in tips while waiting tables at Restaurant 2. They satisfy all other requirements to claim the deduction under section 224. Because the final regulations clarify that “qualified tips” exclude tips received while performing services that are illegal under applicable law, and the services that Employee D provided as a wait person were legal, Employee D understands that their $10,000 in tips are considered “qualified tips” and they can claim the deduction accordingly.

The clarification in the final regulations, that tips are not considered “qualified tips” if they were received while performing services that are illegal under applicable law, provides clarity for taxpayers about whether their tips qualify for the tax deduction under section 224, as instituted by the OBBBA.

iii. Employees Participating in Voluntary Tip Reporting Programs With Tip Rates

The final regulations clarify that employees who enter into a tip agreement through the TRDA or GITCA program may determine the amount of their qualified tips using applicable tip rates in their agreement (as these tips are reported on Form W-2), as well as amounts reported to the IRS on Form 4137. This would not affect the behavior of employees in agreements under the TRDA or GITCA programs as they are required to report their tips (regardless of whether they are eligible for the deduction under section 224) using average tip rates for their occupational category that their employer and the IRS have established.

For example, suppose Employee E and Employee F both work as gambling dealers at Casino 3, and they both have a tip agreement as part of the GITCA program. Employee E receives $11,000 in tips for the year, and Employee F receives $12,000 in tips. The tip rate established by the IRS and their employer for their occupation in the tip agreement requires them to report $10,000 in tips. The Forms W-2 for Employee E and Employee F from Casino 3 each report $10,000 in tips. Due to the clarification in the final regulations about the definition of “qualified tips” for employees under a tip agreement through the TRDA or GITCA program, Employee E and Employee F each understand that they may claim a deduction for $10,000 in qualified tips (if the other requirements of section 224 are met) as those tips were reported to the IRS and Casino 3 in accordance with the tip rate established in their tip agreement.

Some employees under a tip agreement through the TRDA or GITCA programs may decide to report the full amount of their tips (in excess of the tip rate established in their tip agreement) to the IRS on Form 4137 or to their employer. These employees would use that full amount as qualified tips for the deduction under section 224. Any change in the reporting of tip income in excess of the established tip rates is ascribed to the statute, which creates the deduction for qualified tips that are reported on Form W-2 or Form 4137 (as well as Form 1099-NEC, Form 1099-K, and Form 1099-MISC).

iv. Summary

Based on the available models and data, the Treasury Department and the IRS estimate that the economic costs and benefits of the final regulations would be small.

II. Paperwork Reduction Act

This final regulation does not create new collection requirements, as defined under the Paperwork Reduction Act (44 U.S.C. 3501-3520), and does not alter any previously approved OMB information collection requirements and their associated burden.

III. Regulatory Flexibility Act

The Secretary of the Treasury certifies that these final regulations will not have a significant economic impact on a substantial number of small entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). This certification is based on the fact that these regulations do not impose any new requirements on small entities but rather provide to individuals rules for claiming the deduction under section 224 of the Code by specifying the scope of affected occupations as those contained in the proposed regulations and providing clarity on the definition of qualified tips. Because the regulation does not directly impact small entities a Regulatory Flexibility Act (5 U.S.C. chapter 6) analysis is not required.

One commenter asked that the final regulations take special account of the needs of small businesses and that the final regulations not certify that the rule will not have a significant impact on a substantial number of small entities if the final regulations provide details concerning recordkeeping or other obligations of employers. These final regulations do not provide information or instructions concerning the recordkeeping and other obligations of employers and for this reason they have been certified not to have a significant impact on a substantial number of small entities.

IV. Section 7805(f)

Pursuant to section 7805(f) of the Code, the proposed regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. No comments were received.

V. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. These final regulations do not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector, in excess of that threshold.

VI. Executive Order 13132: Federalism

Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These final regulations do not have federalism implications,

VII. Congressional Review Act

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), the Office of Information and Regulatory Affairs designated this rule as a major rule, as defined by 5 U.S.C. 804(2). ( printed page 19048)

Drafting Information

The principal author of these final regulations is the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations and Employment Taxes). However, other personnel from the Treasury Department and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

  • Income taxes
  • Reporting and recordkeeping requirements

Adoption of Amendments to the Regulations

Accordingly, the Treasury Department and the IRS amend 26 CFR part 1 as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding an entry for § 1.224-1 in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

  • * * * * § 1.224-1 also issued under 26 U.S.C. 224(d)(2)(C) and (g) and sec. 70201(h) of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act. * * * * * Par. 2. Add § 1.224-1 under the undesignated center heading “ Additional Itemized Deductions for Individuals ” to read as follows:

§ 1.224-1 Qualified tips. (a) In general. Under section 224(a) of the Internal Revenue Code (Code), there shall be allowed a deduction under section 63(b) of the Code for an amount equal to the qualified tips received by an individual during the taxable year that are included separately on statements furnished to the individual pursuant to section 6041(d)(3), section 6041A(e)(3), section 6050W(f)(2), or section 6051(a)(18) of the Code, or reported by the taxpayer on Form 4137, Social Security and Medicare Tax on Unreported Tip Income (or successor).

(b) Deduction limitations —(1) In general. The amount allowed as a deduction under section 224(a) and paragraph (a) of this section for any taxable year shall not exceed $25,000, regardless of filing status.

(2) Limitation based on adjusted gross income. After the application of the limitation in paragraph (b)(1) of this section, the amount allowable as a deduction under section 224(a) and paragraph (a) of this section shall be further reduced (but not below zero) by $100 for each $1,000 by which the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return). For purposes of this paragraph (b)(2), modified adjusted gross income means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, section 931, or section 933 of the Code.

(3) Examples. The following examples illustrate the rules of paragraphs (b)(1) and (2) of this section.

(i) Example 1. Employee A satisfies all the requirements under section 224 and Employee A's filing status for 2025 is single. A received $26,000 in qualified tips in 2025. Since this is greater than the $25,000 limitation in paragraph (b)(1) of this section, the $26,000 qualified tip amount is first reduced from $26,000 to $25,000. A's modified adjusted gross income for 2025 is $200,000. The qualified tip amount is further reduced (but not below zero) by $100 for each $1,000 by which A's modified adjusted gross income exceeds $150,000 (the threshold for a single filer). A's modified adjusted gross income exceeds $150,000 by $50,000. To calculate the deduction, A first divides $50,000 by $1,000 to get 50. Thus, A's deduction is further reduced under section 224(b)(2) by $5,000 ($100 × 50), from $25,000 to $20,000.

(ii) Example 2. Employee B satisfies all the requirements under section 224 and Employee B's filing status for 2025 is single. B received $10,000 in qualified tips in 2025. Since this amount is less than $25,000, the limitation in paragraph (b)(1) of this section does not apply. B's modified adjusted gross income for 2025 is $180,000. B's deduction is reduced (but not below zero) by $100 for each $1,000 by which B's modified adjusted gross income exceeds $150,000 (the threshold for a single filer). B's modified adjusted gross income exceeds $150,000 by $30,000. To calculate the deduction, B first divides $30,000 by $1,000 to get 30. Thus, B's deduction under section 224(b)(2) is reduced by $3,000 ($100 × 30), from $10,000 to $7,000.

(iii) Example 3. Taxpayers C and D are married, as defined in section 7703 of the Code, and they file a joint income tax return. They both work in occupations that customarily and regularly received tips on or before December 31, 2024, and satisfy all other requirements under section 224. C receives $15,000 in qualified tips in 2025, and D receives $20,000 in qualified tips in 2025. Since the combined amount of their qualified tips is greater than the $25,000 limitation in paragraph (b)(1) of this section, the total qualified tip amount is first reduced from $35,000 to $25,000. C and D's modified adjusted gross income for 2025 is $200,000. Since this amount is less than the $300,000 modified joint adjusted gross income threshold for joint filers, the limitation in paragraph (b)(2) of this section does not apply and no further reduction in the qualified tip amount is necessary.

(c) Qualified tips defined —(1) In general. Subject to the requirements in this paragraph (c), qualified tips are amounts received as cash tips (as defined in paragraph (c)(2) of this section) by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided in paragraph (h) of this section.

(2) Cash tips defined. For purposes of paragraph (c)(1) of this section, cash tips are tips received, directly or indirectly, from payors, as defined in paragraph (c)(5) of this section, including, in the case of an employee, tips received through a mandatory or voluntary tip-sharing arrangement, such as a tip pool, that are paid in a cash medium of exchange, including by cash, check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash (such as casino chips), and any other form of electronic settlement or mobile payment application that is denominated in cash. For purposes of this paragraph (c)(2), cash tips also include amounts paid in foreign currency. Cash tips do not include items paid in any medium other than cash, such as event tickets, meals, services, or other assets that are not exchangeable for a fixed amount in cash. For purposes of this paragraph (c)(2), cash tips also do not include digital assets as defined in section 6045(g)(3)(D) of the Code and § 1.6045-1(a)(19).

(3) Tips defined. For purposes of paragraph (c)(2) of this section, tips are amounts paid by payors, as defined in paragraph (c)(5) of this section, for services that are in excess of the amount agreed to, required, charged, or otherwise reasonably expected to have to be paid for the services in an arm's-length transaction. Superficial or nominal tokens of appreciation from the tip recipient that are negligible in value, such as a written message of thanks sent to the recipient or publicly displayed, do not alter the nature of the contribution as a qualified tip.

(4) Amounts must be paid voluntarily. Amounts are qualified tips only to the extent they are paid voluntarily and without any consequence in the event of nonpayment (including any impact on the scope or cost of service), are not the subject of negotiation, and are ( printed page 19049) determined by the payor. Qualified tips must be paid without compulsion. Thus, service charges, automatic gratuities and any other mandatory amounts automatically added to a customer's (i.e., the payor's) bill by the vendor or establishment are not qualified tips, even if the amounts are subsequently distributed to employees. Any amount voluntarily paid in excess of such mandatory amounts is a qualified tip if all other requirements for a qualified tip under this section are met. If a customer is expressly provided an option to disregard or modify amounts (including to zero) added to a bill, such amounts are not mandatory amounts.

(5) Payor defined. For purposes of this section, “payor” means the ultimate recipient of the services. In most cases, this is the customer, client, or other service recipient. An entity, such as an employer, a third party settlement organization, or a sole proprietorship or single-member limited liability company through which a tip recipient is doing business, that acts as conduit to remit a tip initially paid by a customer, client, or service recipient to the tip recipient, is not a payor of the tip for purposes of this section.

(6) Employees participating in voluntary tip reporting programs with tip rates. Employees who enter into a Tipped Employee Participation Agreement as part of the Tip Reporting Determination Agreement (TRDA) program or a Model Gaming Employee Tip Reporting Agreement as part of the Gaming Industry Tip Compliance Agreement (GITCA) program may determine the amount of qualified tips using the applicable tip rate in their agreement (and amounts reported on Form 4137 (or successor)) in lieu of reporting actual tips received. The use of the TRDA or GITCA program to determine qualified tips for purposes of this section will not affect the tip audit protection otherwise applicable to the employee's agreement. Employees participating in the TRDA or GITCA program remain subject to all remaining requirements in section 224 and this section regarding eligibility for the deduction.

(7) Illegal activity. Any amount received for a service the performance of which is a felony or misdemeanor under applicable law is not a qualified tip.

(8) Prostitution. Any amount received for prostitution services is not a qualified tip.

(9) Pornography. Any amount received for pornographic activity is not a qualified tip.

(10) Managers and Supervisors. Amounts received by a manager or supervisor through a voluntary or mandatory tip-sharing arrangement such as a tip pool are not qualified tips. However, amounts received directly by a supervisor or manager for services they provided in the course of duties performed in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided in paragraph (h) of this section, are qualified tips if all other requirements of this section are met.

(11) Anti-abuse. An amount is not a qualified tip if, based on all relevant facts and circumstances, such amount represents a recharacterization of wages or payments for goods or services as tips for purposes of claiming the deduction.

(i) Facts and circumstances that may indicate a recharacterization of wages, payment for services, or other income as tips include the following:

(A) A charge for services shown on an invoice is less than the payment from the payor shown on a related receipt or information return, and the cash tip reported on the receipt or information return is in an amount that approximates the difference between the charge amount shown on the invoice and payment amount on the receipt or information return; or

(B) A significant shift in historical tipping or payment practices between the payor and the tip recipient.

(ii) When the following facts and circumstances are present, there is an irrebuttable presumption that the amount paid is a recharacterization of wages, payment for services, or other income as tips, and therefore cannot be a qualified tip:

(A) The employer of an employee is the payor, as defined in paragraph (c)(5) of this section, of a cash tip received by the employee; or

(B) The tip recipient has a direct ownership interest in the payor, as defined in paragraph (c)(5) of this section, of a cash tip. For purposes of this paragraph (c)(11)(ii)(B), an ownership interest means in the case of a corporation, ownership (by vote or value) of five percent or more of the stock in such corporation; in the case of a partnership, ownership of five percent of the profits interest or capital interest in such partnership, or in any other case, ownership of more than five percent of the beneficial interests in the entity. An ownership interest is tested as of the date the tip is received. For purposes of this paragraph (c)(11)(ii)(B), an ownership interest is a direct ownership interest if it is an ownership interest held directly by the tip recipient or if it is an ownership interest held through an entity disregarded as separate from its owner for Federal income tax purposes; an ownership interest held through a qualified subchapter S subsidiary as defined in section 1361(b)(3) of the Code; an ownership interest held through a grantor trust (under subpart E of part 1 of subchapter J of charter 1 of the Code); or an ownership interest held through a custodian, broker, nominee, agent, or other similar intermediary.

(12) Examples. The following examples illustrate the rules of this paragraph (c). Unless otherwise indicated, each example assumes that other requirements for claiming the deduction under section 224 are satisfied and that references to a customer are references to a payor, as defined in paragraph (c)(5) of this section.

(i) Example 1. Restaurant W's menu specifies that an automatic 18% charge will be added to all bills for parties of six or more customers. Customer D's bill for food and beverages for her party of six includes the 18% charge on the “tip line” and the total bill includes this amount. Restaurant W distributes this amount to the waitstaff and bussers. Customer D did not determine the amount of the additional charge, nor was Customer D expressly provided an option to disregard or modify the amount. Customer D did not make the payment free from compulsion. Under these circumstances, the 18% charge is not a qualified tip for purposes of the deduction under section 224.

(ii) Example 2. The facts are the same as in paragraph (c)(12)(i) of this section (Example 1) except the bill has a line labeled “additional tip amount.” In this case, Customer D adds on the “additional tip line” an amount equal to 2% of the price for food and beverages. As in paragraph (c)(12)(i) of this section (Example 1), the 18% charge is not a qualified tip for the purposes of the deduction under section 224. However, the 2% additional amount is a qualified tip for the purposes of the deduction under section 224, because Customer D voluntarily paid the 2% additional amount without compulsion.

(iii) Example 3. Customer E dines at Restaurant X with a party of eight people. E's bill for food and beverages for the party of eight includes a “recommended tip” equal to 18% of the price for food and beverages. However, there is a line for the customer to subtract (including to zero) or add to the recommended tip amount before paying the bill. Customer E subtracts 3% from the recommended tip amount resulting in a tip of 15% of the price for food and beverages. Customer E had a right to determine the additional amount, and he was expressly provided the option to ( printed page 19050) disregard or modify the “recommended tip” amount. Under these circumstances, the recommended 18% amount is not a service charge. Rather, the 15% amount that the customer voluntarily paid without compulsion is a qualified tip for purposes of the deduction under section 224.

(iv) Example 4. Customer F has a meal at Restaurant Y. The server presents the bill for the meal to Customer F on an electronic handheld point of sale (POS) device. The POS device includes the charges for each food and beverage item and the applicable tax. The POS device also prompts Customer F to leave a tip and provides the following options for Customer F: 15%, 18%, 20%, other, and no tip. Customer F selects 18% and pays the total balance via credit card through the POS device. Customer F had a right to determine the additional amount, and Customer F was expressly provided the option to leave no tip. Under these circumstances, the 18% amount is a qualified tip. The result would be the same if Customer F were instead prompted with a tip slider that could reduce the tip down to zero; if the tip slider was subject to a minimum floor amount, only amounts above that floor could constitute a qualified tip.

(v) Example 5. The facts are the same as in paragraph (c)(12)(iv) of this section (Example 4), but the only choices on the POS device are 15%, 18%, and 20%. Customer F must select a “tip amount” before paying the bill. Customer F selects 15% and pays the total balance via credit card through the POS device. Customer F did not voluntarily determine the amount of the additional charge because Customer F was forced to select an amount greater than zero. Customer F was not expressly provided an option to disregard or modify the amounts presented. Customer F did not make the payment free from compulsion. Under these circumstances, the 15% charge is not a qualified tip for purposes of the deduction under section 224.

(vi) Example 6. The facts are the same as in paragraph (c)(12)(v) of this section (Example 5), but Customer F selects 18% and pays the total balance via credit card through the POS device. Customer F did not voluntarily determine the lowest required amount (15%) of the additional charge because Customer F was forced to select an amount greater than zero. Customer F was not expressly provided an option to disregard or modify the amounts presented. Customer F did not make the payment of 15% free from compulsion. Under these circumstances, 15% of the charge is not a qualified tip for purposes of the deduction under section 224. However, the 3% additional amount is a qualified tip for the purposes of the deduction under section 224, because Customer F voluntarily, without compulsion, paid the 3% additional amount.

(vii) Example 7. Self-employed Painter G is hired by Customer Z to paint Customer Z's house. Included in the service contract between Painter G and Customer Z is a provision adding a 15% service charge to the total cost of the final bill. After the service contract is signed by both Painter G and Customer Z, Painter G completes the painting services. After the painting services are completed, Customer Z pays the amount agreed upon in the service contract, including the 15% service charge. In addition, Customer Z pays Painter G a cash tip amount, not provided for in the service agreement, equal to 10% of the final bill. The 15% service charge is not a qualified tip because it was included in the service contract before the painting services were provided and Painter G's performance of the painting services was conditioned on the agreement to pay the 15% service charge. However, because the 10% cash tip amount was not included in the service agreement, and because Customer Z voluntarily paid the 10% cash tip amount without compulsion, the 10% cash tip amount is a qualified tip for purposes of the deduction under section 224. Self-employed Painter G can only deduct the 10% cash tip, however, to the extent the other requirements of the statute are met, including that the 10% cash tip is included on a Form 1099 that Painter G receives.

(viii) Example 8. Shuttle Driver S enters into a contract with Customer Q. Under the terms of the contract, Shuttle Driver S will drive Customer Q to the airport for either $60 (consisting of a $50 charge and a 20% gratuity) or $65 (consisting of just the charge for the service with no gratuity). The contract states that an additional tip based on the service provided is welcome. Customer Q selects the first option and pays Shuttle Driver S $60. After arriving at the airport, Customer Q pays Shuttle Driver S an additional $5. The 20% gratuity is not a qualified tip because it was not paid voluntarily, and not providing the 20% gratuity would have resulted in Customer Q paying a higher amount. However, the additional $5 amount added after the service was completed is made without compulsion and is a qualified tip for purposes of this section. Shuttle Driver S can deduct the tip, however, only to the extent the other requirements of the statute are met, including that the tip is included on an information return furnished to Shuttle Driver S, or properly reported by Shuttle Driver S on Form 4137.

(ix) Example 9. The facts are the same as in paragraph (c)(12)(viii) of this section (Example 8) except the terms of the contract state that Shuttle Driver S will drive Customer Q to the airport for $60 and that a recommended 15% tip will be added to the total cost on the bill for convenience. The contract further states that the payment of this recommended tip is subject to the complete discretion of Customer Q and may be increased, decreased or eliminated entirely by Customer Q. After arriving at the airport, Customer Q pays Shuttle Driver S the $60 and decides to include the recommended 15% tip. The 15% gratuity is a qualified tip because Customer Q had the option to change the tip amount and the option to leave no tip amount at all, with no consequence to the services provided or the cost of the service.

(x) Example 10. Landscaper L is self-employed and enters into a contract to install a new patio for Customer O for $5,000. When the services are complete, Customer O pays Landscaper L $5,100, and tells Landscaper L that the additional $100 is a tip for L's services. Landscaper L records the payment on the business's books as a charge for $4,500 for installation of the patio and $600 as a tip. The amount of the qualified tip is $100 because this is the amount that was determined by the payor (the customer). The additional $500 is not a qualified tip because it was not paid voluntarily and was not designated by the payor (the customer). Amounts reclassified by the service provider from the agreed contract price are not qualified tips but are instead part of the charge for services. The additional $500 also is not a tip because it is not in excess of the amount that was agreed to be paid for L's services.

(xi) Example 11. Digital Content Creator H is self-employed and provides training videos on crafting artificial intelligence-created image prompts. These videos are housed on a digital platform accessible through web browsers and a mobile app. H's longer and more complex training videos are locked from public viewing, and users of the digital platform can gain access to these training videos only after paying a $5 contribution to H's digital platform account, the full amount of which is passed on by the digital platform to H. Because the $5 contribution is required to access H's content, this amount is not a qualified tip but rather a payment for services provided, which in this case is the training video. Customer J pays the required $5 contribution and watches ( printed page 19051) the training video. Customer J is so satisfied with the content of the training video that Customer J sends an additional $2 contribution to H's account as a token of appreciation. Because J's $2 contribution was not required to access H's content, the $2 contribution is a qualified tip for purposes of the deduction under section 224.

(xii) Example 12. Digital Content Creator K is self-employed and live streams cooking videos on a digital platform. K's live streams are available for free to all users of the digital platform. Viewers of the live stream can send comments to K during the live stream, which are displayed in a “chat” window during the live stream. In addition, viewers of K's live streams have the option to contribute a tip, along with a comment of appreciation, to K's digital platform account during a live stream. Viewers that contribute a tip will have their contribution and comment displayed prominently in the chat window. In addition, K occasionally thanks contributors personally during the live stream. Because these contributions are not required to access K's content and because the contributions are voluntarily provided, these contributions are qualified tips for purposes of the deduction under section 224. Superficial or nominal digital tokens of appreciation from the tip recipient that are negligible in value, such as highlighting a contribution and comment in a chat window or personally thanking the contributor, do not alter the nature of the contribution as a qualified tip.

(xiii) Example 13. Manager M is a restaurant manager at a restaurant. Customer N dines at the restaurant and is dissatisfied with the quality of the meal provided. Manager M listens to Customer N's complaint about the meal quality and provides resolution in the form of a discounted meal and a gift card. Customer N is very satisfied with Manager M's handling of the situation and leaves a $5 tip specifically for Manager M. Because Manager M received the tip while performing the duties of a restaurant manager when providing service to Customer N, and because restaurant manager is not an occupation that is included in the table of Occupations that Customarily and Regularly Received Tips on or Before December 31, 2024, provided in paragraph (h) of this section, the $5 tip paid by Customer N to Manager M is not a qualified tip.

(xiv) Example 14. The facts are the same as in paragraph (c)(12)(xiii) of this section (Example 13). Manager M occasionally performs duties as wait staff for the restaurant when the restaurant is crowded. Customer P dines at the restaurant and is waited on by Manager M. When Customer P pays the bill, Customer P pays Manager M a $5 tip. Tips are not pooled at this restaurant. Because Customer P's tip was paid directly to Manager M while Manager M was performing the duties of wait staff, and because wait staff is an occupation that is included in the table of Occupations that Customarily and Regularly Received Tips on or Before December 31, 2024, provided in paragraph (h) of this section, the $5 tip paid by Customer P to Manager M is a qualified tip.

(d) Qualified tips must be reported on an information return— (1) In general. Except as provided in paragraph (d)(2) of this section, in order to be eligible for the deduction under section 224, qualified tips must be included in the amount of cash tips that are separately reported on a statement furnished to the taxpayer pursuant to section 6041(d)(3), section 6041A(e)(3), section 6050W(f)(2), or section 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor).

(2) Transition rule for tax year 2025. In order to be eligible for the deduction under section 224 for taxable years beginning before January 1, 2026, qualified tips must be included in the aggregate amount reported on a statement furnished to the taxpayer pursuant to section 6041(d)(3), section 6041A(e)(3), section 6050W(f)(2), or section 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor), but cash tips do not need to be separately reported on the statement.

(3) Statements furnished to certain entities. Statements furnished to a sole proprietorship or a single-member LLC that does not elect to be treated as a corporation for income tax purposes owned by a tip recipient are considered to be furnished to the tip recipient owner of the sole proprietorship or single-member LLC to which the statement was issued, regardless of whether the name of the sole proprietorship or single-member LLC appears as the recipient on the statement.

(e) Trade or business limitations for tips received in course of trade or business —(1) In general. In the case of qualified tips received by an individual during any taxable year in the course of a trade or business (other than a trade or business of performing services as an employee) of such individual, such qualified tips shall be deducted only to the extent that the gross income for the taxpayer from such trade or business for such taxable year (including such qualified tips) exceeds the sum of the deductions (other than the deduction allowed for qualified tips) allocable to the trade or business in which such qualified tips are received by the individual for the taxable year. The deduction allowed for qualified tips is not taken into account for this purpose because it is not a trade or business deduction. Thus, generally, for self-employed taxpayers, the deduction under section 224 for a trade or business is limited to the individual's net income (without regard to the section 224 deduction) from that trade or business.

(2) Examples. The following examples illustrate the rule of paragraph (e)(1) of this section.

(i) Example 1. Manicurist M is self-employed and owns a nail salon. Manicurist M has no other employment. For the taxable year, Manicurist M has gross income of $100,000 that consists of $70,000 of fees for services at the nail salon and $30,000 of qualified tips. Manicurist M's total deductible expenses (other than the deduction for qualified tips) are $40,000. Manicurist M's gross income of $100,000 from the trade or business exceeds the sum of the deductions for that trade or business (other than qualified tips) by $60,000 ($100,000 − $40,000 = $60,000). Because the maximum deduction under section 224 and paragraph (b)(1) of this section is $25,000, Manicurist M is permitted to deduct $25,000.

(ii) Example 2. Manicurist O is self-employed and owns a nail salon. Manicurist O has no other employment. For the taxable year, Manicurist O has gross income of $75,000 that consists of $55,000 of fees for services at the nail salon and $20,000 of qualified tips. Manicurist O's total deductible expenses (other than the deduction for qualified tips) are $60,000. Manicurists O's gross income of $75,000 from the trade or business exceeds the sum of the deductions from that trade or business by $15,000 ($75,000 − $60,000 = $15,000). Although Manicurist O received $20,000 in qualified tips, Manicurist O is allowed a qualified tip deduction of only $15,000, which is the extent to which Manicurist O's gross income from the trade or business ($75,000) exceeds the total deductible expenses (other than qualified tips) ($60,000) from that trade or business.

(f) Social Security numbers and married individuals —(1) In general. To claim a deduction under section 224, a taxpayer must include on the taxpayer's tax return the Social Security number (SSN), as defined in section 24(h)(7) of the Code, of the individual who has received the qualified tips. The SSN, as ( printed page 19052) defined in section 24(h)(7) of the Code, must have been issued before the due date of the income tax return (including extensions) for the calendar year in which the taxpayer is claiming the deduction under section 224.

(2) Married taxpayers. Taxpayers who are married, as defined by section 7703, must file a joint return to claim the deduction allowed by section 224. However, to claim the deduction allowed by section 224, married taxpayers are required to include only the SSN of the taxpayer who has received the tips to claim the deduction, and an SSN is required of both taxpayers only when both have qualified tips for which the deduction is being claimed.

(g) [Reserved]

(h) Occupations that customarily and regularly received tips on or before December 31, 2024. The occupations in table 1 to this paragraph (h) customarily and regularly received tips on or before December 31, 2024. Individuals serving as assistants or apprentices in an occupation are included in that occupation category if they perform the same services as those listed in the occupation description. Subject to the requirements in section 224 and this section, only qualified tips received in connection with the occupations listed in table 1 to this paragraph (h) are eligible for the deduction in section 224(a).

| Treasury
Tipped
Occupa-
tion Code
(TTOC) | TTOC
occupation
title | TTOC occupation
description | TTOC
illustrative
examples | Related
standard
occupational
classification
code (related

SOC code) 1
Beverage and Food Service
101
102
103
104
105
106
107
108
109
110
Entertainment and Events
201
202
203
( printed page 19053)
204
205
206
207
208
209
210
211
Hospitality and Guest Services
301
302
303
304
Home Services
401
402
403
404
( printed page 19054)
405
406
407
408
409
Personal Services
501
502
503
504
505
506
507
508
509
510
Personal Appearance and Wellness
601
602
603
604
605
606
( printed page 19055)
607
608
609
610
611
Recreation and Instruction
701
702
703
704
705
706
Transportation and Delivery
801
802
803
804
805
806
807
808
809
( printed page 19056)
810
1. The “Related Standard Occupational Classification Code (Related SOC Code)” is the code from the 2018 Standard Occupational Classification System, as published by the Executive Office of the President, Office of Management and Budget, that most closely correlate(s) to the Treasury Tipped Occupation Code (TTOC).

(i) Termination. No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.

(j) Applicability date. This section applies to taxable years beginning after December 31, 2024.

Frank J. Bisignano,

Chief Executive Officer.

Approved: February 17, 2026.

Kenneth J. Kies,

Assistant Secretary of the Treasury (Tax Policy).

Footnotes

1.

                         Under section 3121(q), tips are also considered wages for Federal Insurance Contributions Act (FICA) purposes. However, the deduction under section 224 does not apply for FICA purposes and is not taken into account in determining wages subject to FICA tax. Similarly, the deduction under section 224 does not apply for Self-Employment Contributions Act (SECA) purposes and is not taken into account for purposes of determining net earnings subject to SECA tax.

Back to Citation 2.

                         The House Budget Committee report on the OBBBA, H. Rept. 119-106, at 1503 (2025), specifies that the qualified tip amounts included on reporting statements (for example, Form 1099) must be separately accounted for on the statements.

Back to Citation 3.

                         Section 224(d)(1) specifies that the occupation must have customarily and regularly received tips *on or before December 31, 2024.* The Treasury Department and the IRS reviewed data for the 2023 tax year because that was the most recent year for which comprehensive income tax return data was available. The Treasury Department and the IRS compared the 2023 tax year data to similar data for 2017-2022. Because 2023 data was similar to prior year data, the Treasury Department and the IRS reviewed preliminary data for the 2024 tax year and anticipated that final 2024 data would be substantially similar to 2023 data.

Back to Citation 4.

                         The Treasury Department and the IRS reviewed preliminary data for the 2024 tax year and anticipated that final 2024 data would be substantially similar to 2023 data.

Back to Citation 5.

                         Only employees receive Forms W-2, which include separate tip reporting. Similarly, only employees report their tips using Form 4137. Independent contractors do not separately report tips on their income tax returns, and the information returns received by independent contractors prior to 2026, such as Forms 1099-MISC, did not separately report tips. Thus, no tax return information was available concerning tips received by independent contractors. Beginning in tax year 2026, information returns furnished to both independent contractors and employees will separately report certain tips.

Back to Citation 6.

                         The Treasury Department and the IRS reviewed the data at the more granular level of occupations listed on individual income tax returns to verify that the SOC Code grouping did not exclude occupations based on inaccurate data.

Back to Citation 7.

                         
                        See 
                         90 FR at 45344. Under the FLSA, so long as certain criteria are satisfied, employers can take a tip credit to bring a tipped employee's total wages up to the Federal minimum wage amount. 
                        See [29 U.S.C. 203(m)(2)(A)(i)-(ii)](https://www.govinfo.gov/link/uscode/29/203). Currently, the federal minimum wage is $7.25 per hour, and the maximum tip credit amount is $5.12.

Back to Citation 8.

                         The FLSA's tip credit has several components, including that an employee must be in an occupation in which the employee customarily and regularly receives at least a certain amount per month in tips (more than $30), retains all tips (except for a pool limited to employees who customarily and regularly receive tips), receives other direct wages, and receives advance notice to qualify as a “tipped employee” for whom an employer may take a tip credit against its minimum wage obligations. 
                        See [29 U.S.C. 203(m)(2)(A)](https://www.govinfo.gov/link/uscode/29/203), (t).

Back to Citation 9.

                         The regulations also provide that “if an employee is in an occupation in which he normally and recurrently receives more than $30 a month in tips, he will be considered a tipped employee even though occasionally because of sickness, vacation, seasonal fluctuations or the like, he fails to receive more than $30 in tips in a particular month.” [29 CFR 531.57](https://www.ecfr.gov/current/title-29/section-531.57).

Back to Citation 10.

                         
                        See 
                         DOL Field Operation Handbook, § 30d08. Retrieved December 18, 2025, from *[https://www.dol.gov/​agencies/​whd/​field-operations-handbook](https://www.dol.gov/agencies/whd/field-operations-handbook); see also* WHD Opinion Letter FLSA2025-03 (Sept. 30, 2025); WHD Opinion Letter FLSA2009-12 (Jan. 15, 2009); WHD Opinion Letter FLSA2008-18 (Dec. 19, 2008); and WHD Opinion Letter FLSA-858 (June 28, 1985) (concluding that barbacks, itamae-sushi and 

                        teppanyaki chefs, and a “wine-server/captain-host,” respectively, could be included in a tip pool with tipped employees for whom the employer took a tip credit).

Back to Citation 11. See Montano v. Montrose Rest. Assocs., 800 F.3d 186, 189-194 (5th Cir. 2015) (holding that a factfinder could determine that an employee did not “customarily and regularly receive tips,” despite the fact that the employer included him in a tip pool).

Back to Citation 12.

                         Given the wide variation of terms used to characterize occupations on income tax returns, it was not feasible to examine every occupation in this way. For this reason, this examination was conducted only for occupations that commenters suggested were missing from the list of tipped occupations in the proposed regulations.

Back to Citation 13.

                         Under 2023 Oregon House Bill No. 2426, signed into law on August 4, 2023, the state of Oregon now allows self-service in certain situations, but certain gas stations in the State are still required to provide full service for at least half of the gas pumps at the station. 2023 Oregon House Bill No. 2426, Oregon Eighty-Second Legislative Assembly.

Back to Citation 14.

                         The FLSA provides that when an employer takes an FLSA tip credit for a tipped employee, the tipped employee must retain all of the tips the employee receives, and the employer cannot require the employee to pool tips except with other “employees who customarily and regularly receive tips.” [29 U.S.C. 203(m)(2)(A)](https://www.govinfo.gov/link/uscode/29/203).

Back to Citation 15.

                         With respect to employees, the existing rules under section 6053(a) require employees to report tips received in the course of their employment to their employers, and employers to take those reported amounts into account for wage reporting purposes. This reporting requirement does not apply to independent contractors.

Back to Citation 16.

                         The GENIUS Act becomes effective on the earlier of January 18, 2027, or 120 days after final implementing regulations are issued. The term “payment stablecoin” is defined in section 2(22) of the GENIUS Act.

Back to Citation 17.

                         Form W-9, *Request for Taxpayer Identification Number and Certification,* instructs both sole proprietorships and single-member LLCs (not treated as a corporation) to include the individual name of the owner on line 1. Therefore, if the payee completes Form W-9 correctly, and the payor correctly uses the info on Form W-9 to complete the appropriate Form 1099, then the individual's name should appear on the Form 1099. However, this rule is intended to clarify that if the instructions change or if the form is incorrectly filled out and includes only the business name, the reporting statement is still considered to be issued to the owner of the sole proprietorship or single-member LLC.

Back to Citation 18.

                         References to a “section” are to a section of the Internal Revenue Code of 1986, as amended (Code), unless otherwise indicated.

Back to Citation 19. See supra, “Comments on the Methodology Used to Construct the List of Occupations that Receive Tips.”

Back to Citation 20. See Montano v. Montrose Rest. Assocs., 800 F.3d 186, 189-194 (5th Cir. 2015) (holding that a factfinder could determine that an employee did not “customarily and regularly receive tips,” despite the fact that the employer included him in a tip pool).

Back to Citation 21.

                         The SOC Code system is published by the Executive Office of the President, Office of Management and Budget. The SOC Code system is a federal statistical standard used by Federal agencies to classify workers into occupational categories for the purposes of collecting, calculating, or disseminating data. See Office of Management and Budget. (2018). Standard Occupational Classification Manual. U.S. Government Publishing Office. This manual and other related SOC Code documents can be found at *[https://www.bls.gov/​soc](https://www.bls.gov/soc).*

Back to Citation 22.

                         Taxpayers have a single line to report their occupation on the Form 1040. If they have multiple occupations, they may write the occupation for only one of their jobs or they may write multiple occupations. However, when analyzing the tax return data, it would be difficult to determine to which job any reported tips should be assigned when a taxpayer has multiple jobs. Therefore, the Treasury Department and the IRS limited the main analysis of the tax return data to taxpayers with only one job. However, even among this sample, some taxpayers may write both the occupation from their job and a title for a role where they may not receive income, such as “Student/Occupation.”

Back to Citation 23.

                         Since tips are reported separately from other compensation for employees but not for the self-employed in the current tax return data, these screening criteria that limit the sample to employees with a single job were utilized to better illuminate the link between the self-reported occupations and reported tips.

Back to Citation 24.

                         Table A shows statistics based on the Related SOC Code(s), not on the TTOC, which may differ from the Related SOC Code(s). For example, the statistics listed under TTOC 506 (Pet and Show Animal Caretakers) shows the statistics for all taxpayers in the Related SOC Code 39-2021 (Animal Caretakers), including taxpayers whose occupations are not included in TTOC 506, such as zookeepers. As described in the preamble to the proposed regulations, some SOC Codes were narrowed in the creation of the TTOC occupation. Certain occupations grouped in the same SOC Code with non-tipped occupations were segregated from these non-tipped occupations and provided their own TTOC occupation category. Therefore, the lower percentages for certain TTOC occupation categories may be because the data on the percentage of individuals reporting tips is for the wider related SOC Code, not for the narrower TTOC occupation. In addition, that data included in Table A reflects only data for employees and does not provide tipping data for independent contractors. The lack of representation for tipped independent contractors may skew the percentage of individuals reporting tips lower in certain occupations.

Back to Citation 25.

                         Initial drafts of the OBBBA legislation contemplated a deduction for tips received by individuals in occupations that traditionally and customarily receive tips, but this language was later revised to refer to occupations that customarily and regularly receive tips.

Back to Citation [FR Doc. 2026-07104 Filed 4-10-26; 8:45 am]

BILLING CODE 4831-GV-P

Published Document: 2026-07104 (91 FR 19026)

CFR references

26 CFR 1

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Classification

Agency
Treasury Department
Published
June 12th, 2026
Compliance deadline
June 12th, 2026 (62 days)
Instrument
Rule
Legal weight
Binding
Stage
Final
Change scope
Substantive
Document ID
91 FR 19026 / TD 10044
Docket
TD 10044

Who this affects

Applies to
Employers Food manufacturers Retailers
Industry sector
7225 Food Services
Activity scope
Tip income reporting FICA tax withholding Payroll compliance
Geographic scope
United States US

Taxonomy

Primary area
Taxation
Operational domain
Compliance
Topics
Employment & Labor Income taxes Reporting and recordkeeping requirements

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