Definition of Qualified Tips for Income Tax Deduction Under Section 224

Content

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.

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

  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

  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

  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

  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

  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

  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

  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.

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

  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

  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

  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

  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

  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.

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

  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

  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

  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
tippedoccupationcode(TTOC) | TTOC
occupation title | Percent
withreported
tips 1 | Percent of all
reported
tips 2 | Reported tips as
percent of wagesof tipped
workers 3 | Related standard
occupationalclassification 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 |
| 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 |
| 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

  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).

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

Regulatory Text 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

  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

  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

  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

  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
TippedOccupa-tion Code(TTOC) | TTOC
occupationtitle | TTOC occupation
description | TTOC
illustrativeexamples | Related
standardoccupationalclassificationcode (related
SOC code) 1 |
| --- | --- | --- | --- | --- |
| Beverage and Food Service | | | | |
| 101 | Bartenders | Mix and serve drinks or other refreshments to patrons, directly or through waitstaff | Barkeep, mixologist, taproom attendant, sommelier | 35-3011 |
| 102 | Wait Staff | Take orders and serve food and beverages to patrons at tables in dining establishments or at catered events | Cocktail waitress, dining car server, banquet staff | 35-3031 |
| 103 | Food or Beverage Servers, Non-restaurant | Serve food or beverages to individuals outside of a restaurant environment, such as in hotel rooms, residential care facilities,
or cars | Room service food server, boat hop, beer cart server | 35-3041 |
| 104 | Dining Room and Cafeteria Attendants and Bartender Helpers | Facilitate food service. Clean tables; remove dirty dishes; replace soiled table linens; set tables; replenish supply of clean
linens, silverware, glassware, and dishes; supply service bar with food; and serve items such as water, condiments, and coffee
to patrons | Bar back, bar helper, busser | 35-9011 |
| 105 | Chefs and Cooks | Direct and may participate in the preparation, seasoning, and cooking of salads, soups, fish, meats, vegetables, desserts,
or other foods | Executive chef, pastry chef, sous chef, fast food cook, private chef, restaurant cook, saucier, food truck cook, banquet cook,
caterer, chocolatier, confectioner | 35-1011, 35-2011, 35-2013, 35-2014, 35-2019 |
| 106 | Food Preparation Workers | Perform a variety of food preparation duties other than cooking, such as preparing cold foods and shellfish, slicing meat,
and brewing coffee or tea | Salad maker, sandwich maker, fruit and vegetable parer, kitchen steward | 35-1012, 35-2021, 35-9099 |
| 107 | Fast Food and Counter Workers | Serve customers at counter or from a steam table. Perform duties such as taking orders and serving food and beverages. May
take payment. May prepare food and beverages | Barista, ice cream server, cafeteria server | 35-3023 |
| 108 | Dishwashers | Clean dishes, kitchen, food preparation equipment, or utensils | Dish room worker, silverware cleaner | 35-9021 |
| 109 | Host Staff, Restaurant, Lounge, and Coffee Shop | Welcome patrons, seat them at tables or in lounge, and help ensure quality of facilities and service | Maître d'hôtel, dining room host | 35-9031. |
| 110 | Bakers | Mix and bake ingredients to produce breads, rolls, cookies, cakes, pies, pastries, or other baked goods | Bread baker, cake baker, bagel baker, pastry finisher | 51-3011 |
| Entertainment and Events | | | | |
| 201 | Gambling Dealers | Operate gambling games. Stand or sit behind table and operate games of chance by dispensing the appropriate number of cards
or blocks to players or operating other gambling equipment. Distribute winnings or collect players' money or chips. May compare
the house's hand against players' hands | Blackjack dealer, craps dealer, poker dealer, roulette dealer, pit clerk | 39-3011, 39-1013 |
| 202 | Gambling Change Persons and Booth Cashiers | Exchange coins, tokens, and chips for patrons' money. May issue payoffs and obtain customer's signature on receipt. May operate
a booth in the slot machine area and furnish change persons with money bank at the start of the shift, or count and audit
money in drawers | Slot attendant, mutuel teller | 41-2012 |
| 203 | Gambling Cage Workers | In a gambling establishment, conduct financial transactions for patrons. Accept patron's credit application and verify credit
references to provide check-cashing authorization or to establish house credit accounts. May reconcile daily summaries of
transactions to balance books. May sell gambling chips, tokens, or tickets to patrons, or to other workers for resale to patrons.
May convert gambling chips, tokens, or tickets to currency upon patron's request. May use a cash register or computer to record
transaction | Casino cashier, cage cashier | 43-3041 |
| 204 | Gambling and Sports Book Writers and Runners | Post information enabling patrons to wager on various races and sporting events. Assist in the operation of games such as
keno and bingo. May operate random number-generating equipment and announce the numbers for patrons. Receive, verify, and
record patrons' wagers. Scan and process winning tickets presented by patrons and pay out winnings for those wagers | Betting runner, bingo worker, keno runner, race book writer | 39-3012 |
| 205 | Dancers | Perform dances | Club dancer, dance artist | 27-2031 |
| 206 | Musicians and Singers | Play one or more musical instruments or sing | Instrumentalist, accompanist, lounge singer | 27-2042 |
| 207 | Disc Jockeys, Except Radio | Play prerecorded music for live audiences at venues or events such as clubs, parties, or wedding receptions. May use techniques
such as mixing, cutting, or sampling to manipulate recordings. May also perform as emcee (master of ceremonies) | Deejay, club DJ | 27-2091 |
| 208 | Entertainers and Performers | Entertain audiences with artistic expression | Comedian, clown, magician, street performer | 27-2099 |
| 209 | Digital Content Creators | Produce and publish on digital platforms original entertainment and personality-driven content, such as live streams, short-form
videos, or podcasts | Streamer, online video creator, social media influencer, podcaster | 27-2099 |
| 210 | Ushers, Lobby Attendants, and Ticket Takers | Assist patrons at entertainment events by performing duties, such as collecting admission tickets and passes from patrons,
assisting in finding seats, searching for lost articles, and helping patrons locate such facilities as restrooms and telephones | Ticket collector, theater usher | 39-3031 |
| 211 | Locker Room, Coatroom, and Dressing Room Attendants | Provide personal items to patrons or customers in locker rooms, dressing rooms, or coatrooms | Coat checker, washroom attendant, bathhouse attendant | 39-3093 |
| Hospitality and Guest Services | | | | |
| 301 | Baggage Porters and Bellhops | Handle baggage for travelers at transportation terminals or for guests at hotels or similar establishments | Hotel baggage handler, curbside airport check-in assistant, doorman | 39-6011 |
| 302 | Concierges | Assist patrons at hotels or apartment buildings with personal services. May take messages; arrange or give advice on transportation,
business services, or entertainment; or monitor guest requests for housekeeping and maintenance | Hotel guest service agent, activities concierge | 39-6012 |
| 303 | Hotel, Motel, and Resort Desk Clerks | Accommodate hotel, motel, and resort patrons by registering and assigning rooms to guests, issuing room keys or cards, transmitting
and receiving messages, keeping records of occupied rooms and guests' accounts, making and confirming reservations, and presenting
statements to and collecting payments from departing guests | Front desk clerk, registration clerk | 43-4081 |
| 304 | Maids and Housekeeping Cleaners | Perform any combination of light cleaning duties to maintain commercial establishments, such as hotels, in a clean and orderly
manner. Duties may include making beds, replenishing linens, cleaning rooms and halls, and vacuuming | Hotel maid, housekeeping staff | 37-2012 |
| Home Services | | | | |
| 401 | Home Maintenance and Repair Workers | Perform work to keep machines, mechanical equipment, or the structure of a building in repair. May maintain and repair musical
instruments, furniture, antiques, and non-fixtures | Handyman, roofer, window repairer, house painter (interior or exterior), flooring installer, piano tuner, furniture restorer,
antique repairer | 49-9071, 49-9098, 49-9099, 49-9063, 49-2097, 51-7021 |
| 402 | Home Landscaping and Groundskeeping Workers | Landscape or maintain grounds of property using hand or power tools or equipment. Workers typically perform a variety of tasks,
which may include any combination of the following: sod laying, mowing, trimming, planting, watering, fertilizing, digging,
raking, sprinkler installation, and installation of mortarless segmental concrete masonry wall units | Lawn mower, gardener, tree trimmer, weed sprayer | 37-3011 |
| 403 | Home Electricians | Install, maintain, and repair electrical wiring, equipment, and fixtures. Ensure that work is in accordance with relevant
codes. May install or service exterior lights, intercom systems, or electrical control systems | Electrician | 47-2111 |
| 404 | Home Plumbers | Assemble, install, alter, and repair pipelines or pipe systems that carry water, steam, air, or other liquids or gases. May
install heating and cooling equipment and mechanical control systems | Plumber, pipefitter, steamfitter, sprinkler installer | 47-2152 |
| 405 | Home Heating and Air Conditioning Mechanics and Installers | Install or repair heating, central air conditioning, HVAC, or refrigeration systems, including oil burners, hot-air furnaces,
and heating stoves | Air conditioning repairer, heating system installer, chimney sweep | 49-9021 |
| 406 | Home Appliance Installers and Repairers | Repair, adjust, or install all types of electric or gas household appliances, such as refrigerators, washers, dryers, and
ovens | Washing machine installer, dishwasher repairer | 49-9031 |
| 407 | Home Cleaning Service Workers | Perform any combination of light cleaning duties to maintain private households in a clean and orderly manner. Duties may
include making beds, replenishing linens, cleaning rooms and halls, and vacuuming | House cleaner, pool cleaner, carpet cleaner, window washer | 37-2012 |
| 408 | Locksmiths | Repair and open locks, make keys, change locks and safe combinations, and install and repair safes | Safe installer, key maker | 49-9094 |
| 409 | Roadside Assistance Workers | Provide on-road assistance to drivers whose vehicles have broken down | Tow truck driver, car battery technician, tire repairer, tire changer, car fuel deliverer | 49-3023, 53-3032 |
| Personal Services | | | | |
| 501 | Personal Care and Service Workers | Provide personalized assistance to individuals with disabilities or illness who require help with personal care and activities
of daily living support (for example, feeding, bathing, dressing, grooming, toileting, and ambulation). May also provide help
with tasks such as preparing meals, doing light housekeeping, and doing laundry. 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 | Elderly companion, personal care aide, butler, house sitter, personal valet | 31-1122, 39-9099 |
| 502 | Private Event Planners | Coordinate activities of staff or clients to make arrangements for private events. May provide creative design for décor and
invitations | Wedding planner, party planner | 13-1121 |
| 503 | Private Event and Portrait Photographers | Photograph people, landscapes, or other subjects. May use lighting equipment to enhance a subject's appearance. May use editing
software to produce finished images and prints | Wedding photographer, headshot photographer | 27-4021 |
| 504 | Private Event Videographers | Operate video or film camera to record images or scenes of private events | Wedding videographer | 27-4031 |
| 505 | Event Officiants | Lead and facilitate the ceremony for life events such as weddings or funerals. Ceremonies may be religious or civil services | Wedding officiant, funeral celebrant, clergy, vow renewal officiant | 21-2011 |
| 506 | Pet and Show Animal Caretakers | Feed, water, groom, bathe, exercise, or otherwise provide care to promote and maintain the well-being of pets or show animals | Pet groomer, pet sitter, pet walker, kennel worker, pet trainer, horse groomer | 39-2021 |
| 507 | Tutors | Instruct individual students or small groups of students in academic subjects to supplement formal class instruction or to
prepare students for standardized or admissions tests. May provide instruction in person or remotely | Reading tutor, math tutor, language tutor | 25-3041 |
| 508 | Nannies and Babysitters | Attend to children at businesses and private households. Perform a variety of tasks, such as dressing, feeding, bathing, and
overseeing play | Au pair, child sitter at hotels and gyms | 39-9011 |
| 509 | Visual Artists | Create original visual artwork using any of a wide variety of media and techniques | Ice sculptor, caricature sketch artist | 27-1013 |
| 510 | Floral Designers | Design, cut, and arrange live, dried, or artificial flowers and foliage | Corsage maker, florist, flower arranger, event florist | 27-1023 |
| Personal Appearance and Wellness | | | | |
| 601 | Skincare Specialists | Provide skincare treatments to face and body to enhance an individual's appearance | Facialist, electrologist, spa esthetician | 39-5094 |
| 602 | Massage Therapists | Perform therapeutic massages of soft tissues and joints. May assist in the assessment of range of motion and muscle strength
or propose client therapy plans | Masseuse, deep tissue massage therapist, sports massage therapist | 31-9011 |
| 603 | Barbers, Hairdressers, Hairstylists, and Cosmetologists | Provide beauty or barbering services, such as cutting, coloring, and styling hair, massaging and treating scalps, trimming
beards or giving shaves | Wig stylist, beautician, hair colorist, hair cutter | 39-5012, 39-5011 |
| 604 | Shampooers | Shampoo and rinse customers' hair | Scalp treatment specialist, shampoo assistant | 39-5093 |
| 605 | Manicurists and Pedicurists | Clean and shape customers' fingernails and toenails. May polish or decorate nails | Nail technician, fingernail sculptor, nail painter | 39-5092 |
| 606 | Eyebrow and Eyelash Technicians | Enhance and maintain clients' eyebrows using techniques such as threading, waxing, or tweezing. Enhance clients' eyelashes
using techniques such as tinting or applying extensions | Eyebrow waxer | 39-5012 |
| 607 | Makeup Artists | Design and apply makeup looks | Wedding makeup artist, party makeup artist | 39-5091 |
| 608 | Exercise Trainers and Group Fitness Instructors | Instruct or coach groups or individuals in exercise activities for the primary purpose of personal fitness. Demonstrate techniques
and form, observe participants, and explain to them corrective measures necessary to improve their skills. Develop and implement
individualized approaches to exercise | Aerobics trainer, yoga instructor, personal trainer | 39-9031 |
| 609 | Tattoo Artists and Piercers | Design and execute tattoos on a client's skin, often using a needle and ink. Create openings in the human body for the insertion
of jewelry. May consult clients on aftercare to promote healing and prevent infection | Tattoo artist, ear piercer, nose piercer | 27-1019 |
| 610 | Tailors | Design, make, alter, repair, or fit garments | Tailor, seamstress, clothing alterations worker | 51-6052 |
| 611 | Shoe and Leather Workers and Repairers | Construct, decorate, or repair leather and leather-like products, such as luggage, shoes, and saddles. May use hand tools | Cobbler, shoe shiner | 51-6041 |
| Recreation and Instruction | | | | |
| 701 | Golf Caddies | Assist a golfer during a round of golf by providing practical support and strategic advice. May carry the golfer's bag, manage
their clubs, offer guidance on club selection or course strategy | Golf caddie, golf cart attendant | 39-3091 |
| 702 | Self-Enrichment Teachers | Teach or instruct individuals or groups for the primary purpose of self-enrichment, rather than for an occupational objective,
educational attainment, competition, or fitness | Knitting instructor, piano teacher, art instructor, dance teacher | 25-3021 |
| 703 | Recreational and Tour Pilots | Pilot and navigate the flight of fixed-wing aircraft, helicopters, or other airborne vehicle for recreational or touring purposes.
Excludes regional national, and international airline pilots, and emergency services pilots | Helicopter tour pilot, hot air balloon aeronaut, skydiving pilot | 53-2012 |
| 704 | Tour Guides | Guide individuals or groups on sightseeing tours or through places of interest, such as industrial establishments, public
buildings, and art galleries | Museum guide, sightseeing guide | 39-7011 |
| 705 | Travel Guides | Plan, organize, and conduct long-distance travel, tours, and expeditions for individuals and groups (covering both indoor
and outdoor locations) | Cruise director, river expedition guide | 39-7012 |
| 706 | Sports and Recreation Instructors | Teach or instruct individuals or groups for the primary purpose of recreation, rather than for an occupational objective,
educational attainment, competition, or fitness | Diving instructor, ski instructor, tennis teacher, surfing instructor | 25-3021 |
| Transportation and Delivery | | | | |
| 801 | Parking and Valet Attendants | Park vehicles or issue tickets for customers in a parking lot or garage. May park or tend vehicles in environments such as
a hotel or restaurant. May collect fee | Parking garage attendant, valet parker | 53-6021 |
| 802 | Taxi and Rideshare Drivers and Chauffeurs | Drive a motor vehicle to transport passengers on a planned or unplanned basis | Cab driver, personal driver, platform/app-based rideshare driver | 53-3054 |
| 803 | Shuttle Drivers | Drive a motor vehicle to transport passengers on a planned route and scheduled basis. May collect a fare. Excludes taxi and
rideshare drivers, chauffeurs, municipal bus drivers, and school bus drivers | Airport shuttle driver, hotel shuttle driver, rental car shuttle driver | 53-3053 |
| 804 | Goods Delivery People | Drive truck or other vehicle to deliver goods, such as food products, appliances, or furniture, or pick up or deliver packages.
May also take orders or collect payment at point of delivery | Pizza delivery driver, grocery delivery driver, floral delivery, bicycle courier, package delivery person, appliance delivery
driver, furniture delivery person, app/platform-based delivery person | 53-3031 |
| 805 | Personal Vehicle and Equipment Cleaners | Wash or otherwise clean personal vehicles, machinery, and other equipment. Use such materials as water, cleaning agents, brushes,
cloths, and hoses | Car wash attendant, auto detailer, boat waxer | 53-7061 |
| 806 | Private and Charter Bus Drivers | Drive bus or motor coach for charters or private carriage. May assist passengers with baggage | Motor coach bus driver, tour bus driver | 53-3052 |
| 807 | Water Taxi Operators and Charter Boat Workers | Operate water taxi boats or provide services to passengers on private charter boats. May assist in navigational activities | Water taxi captain, air boat operator, charter boat deckhand, charter boat steward | 53-5022 |
| 808 | Rickshaw, Pedicab, and Carriage Drivers | Operate rickshaw, pedicab, or carriage to transport passengers | Horse drawn carriage driver, bike taxi driver | 53-6099 |
| 809 | Home Movers | Manually move furniture, music instruments, art, antiques, boxes, luggage, or other materials to or from a home or dwelling | Furniture mover, packer, piano mover, art mover | 53-7062 |
| 810 | Gas Pump Attendant | Pump gas for customers at a gas station. 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 | Gas pumper | 53-6031 |
| 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). [FR Doc. 2026-07104 Filed 4-10-26; 8:45 am] BILLING CODE 4831-GV-P

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.

(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.

(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.

(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.

(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.

(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.

(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). Currently, the federal minimum wage is $7.25 per hour, and the maximum tip credit amount is
$5.12.

(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), (t).

(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.

(10) See DOL Field Operation Handbook, § 30d08. Retrieved December 18, 2025, from 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).

(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).

(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.

(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.

(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).

(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.

(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.

(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.

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

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

(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).

(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.

(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.”

(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.

(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.

(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.

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