Explore Tax-Free Tips for Qualified Occupations

On September 2, 2025, a significant update emerged from the Treasury Department, introducing a list of 68 occupations that qualify for the innovative "no tax on tips" deduction. This new deduction stems from the "One Big Beautiful Bill Act," enacted on July 4, 2025, and targets federal income tax relief for the years 2025 through 2028.

This particular deduction allows for up to $25,000 in qualifying tips per individual annually. It is designed as a "below-the-line" deduction, preserving eligibility for taxpayers who opt for the standard deduction, yet it does not influence the calculation of adjusted gross income (AGI).

Image 1

Qualified Occupations

The Treasury has earmarked several sectors where this deduction could be applied:

  • Beverage & Food Service: Positions such as bartenders, wait staff, chefs, and bakers feature prominently.
  • Entertainment and Events: This includes gambling dealers, musicians, disc jockeys, and digital content creators.
  • Hospitality and Guest Services: Roles like concierges and housekeeping staff are covered.
  • Home Services: This category includes maintenance workers, electricians, and plumbers.
  • Personal Services: Personal care workers, event planners, pet caretakers, and more qualify.
  • Personal Appearance and Wellness: This sector includes barbers, cosmetologists, and fitness instructors.
  • Recreation and Instruction: Golf caddies, tour guides, and sports instructors are listed.
  • Transportation and Delivery: This category involves chauffeurs, parcel delivery, and valet attendants.
Image 3

Eligibility Criteria

To leverage this deduction, several criteria must be met:

  • The worker must belong to one of the specified occupations with a history of regularly receiving tips.
  • Only tips voluntarily given by customers are eligible; mandatory service charges cannot be included.
  • Tips need to be properly reported to the IRS, via Form W-2 for employees or Form 1099 for independent contractors.
  • For married individuals, a joint tax filing is required to claim this deduction.
  • An SSN must be provided on the tax return by anyone claiming this deduction.

Deduction Limits and Considerations

The maximum deduction stands at $25,000, subject to a phase-out for individuals with higher incomes:

  • Single Taxpayers: Phase-out begins for modified AGI over $150,000.
  • Married Joint Filers: Phase-out begins for modified AGI over $300,000.

It is essential to note that while tips are deductible for income tax purposes, they still attract Social Security and Medicare taxes. Moreover, this is a temporary provision valid until the end of 2028, and the impact on state taxes varies based on state laws.

Image 2

Understanding these aspects is vital for both employees and employers to maximize possible tax benefits. It is advised that relevant stakeholders stay informed about these provisions and seek expert advice tailored to their specific situations to successfully navigate the intricacies of tip income deductions.

For further details or assistance, please contact our office. We are here to help you make informed tax planning decisions.

Share this article...

Want tax & accounting tips and insights?

Sign up for our newsletter.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .