Are You Eligible for the No Tax on Tips Provision One Big Beautiful Bill Act 2025

Effective from 2025 through 2028, eligible employees and self-employed individuals may deduct up to $25,000 in qualified tips earned in jobs that are listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024.ᶦ

General Eligibility Criteria:

On September 2, 2025, the U.S. Treasury and IRS released a list of occupations eligible for the temporary “No Tax on Tips” deduction.

• Eligible occupations: The law applies to workers in jobs in eight industry categories that have traditionally and customarily received tips.ᶦᶦ The Treasury Department is responsible for publishing an official list of eligible occupations. Examples of roles that will qualify include:ᶦᶦᶦ
  • Food and beverage service: Restaurant servers and dishwashers, bartenders, baristas in full-service cafes, food servers at non-restaurants such as residential care facilities and hotels, bakers, cooks, chefs, host staff at restaurants, coffee shops, and lounges, and food prep workers.
  • Hospitality: Bellhops, maids and housekeeping cleaners, concierges, baggage porters, and motel, hotel, and resort desk clerks.
  • Transportation: Taxi, rideshare, delivery drivers, pedicab and carriage drivers, chauffeurs, home movers, shuttle drivers, parking attendants and valets, charter bus drivers, water taxi drivers, Rickshaw drivers, and personal vehicle cleaners.
  • Personal care services industry: House sitters, nannies and childcare providers, home health aides, tutors, pet caretakers, private event planners, videographers, and portrait and event photographers, officiants for weddings and funerals.
  • Home service: Plumbers, electricians, home maintenance, cleaning and repair workers, locksmiths, groundskeeping and home landscaping workers, and roadside assistance workers.
  • Personal appearance & wellness: Hairdressers, shampooers, hairstylists, nail technicians, waxing technicians, cosmetologists, barbers, masseuses, tattoo artists and piercers, skincare specialists, exercise trainers, tailors, cobblers, cordwainer workers, and makeup artists.
  • Entertainment: Gambling dealers, gaming attendants, sports book writers and runners, cage workers, booth cashiers, and change people (or change attendants, a mobile cashier who works the floor of a casino), musicians, dancers and singers, DJs that work clubs, parties and other events, outside of radio, digital creators such as podcasters, streamers, and social media influencers, locker room, dressing room, and coatroom attendants, ticket takers, ushers, and lobby attendants.
  • Recreation: Travel guides, tour guides, tour pilots, golf caddies, recreation instructors (like golf or tennis instructors), self-improvement instructors (such as art, music, dance, or cooking teachers).
• Income limitations: The deduction begins to phase out for individuals with a modified adjusted gross income (MAGI) over $150,000, or $300,000 for married couples filing jointly. The deduction phases out at a 10% rate until it reaches $0. For a single taxpayer who claims the maximum $25,000, the deduction would reach $0 at $400,000 of MAGI, and for a married couple, the deduction would reach $0 at $550,000 of MAGI.ᶦᵛ
• Proper and accurate reporting: Tips are required to be properly reported to your employer and accurately reflected on your annual tax forms (Form W-2, 1099, or 4137).
• What tips to report: Report to your employer only cash, check and debit, and credit card tips you receive. If total tips are below $20 for any one month, you do not need to report those month’s tips to that employer. Noncash tips do not need to be reported to your employer, for example. If you tip-pool or tip-split, only report the tips you receive. But don’t report to your employer tips you pass on to other employees.
• Tip type: The deduction applies to "qualified tips," which are voluntary, non-negotiated cash or charged tips from customers. It does not apply to mandatory service charges or automatic gratuities.
• Valid Social Security Number: You must have a valid Social Security Number (SSN) to claim the deduction.

Specific to Taxpayers:

Both itemizing and non-itemizing taxpayers are eligible for the deduction.

• Self-employed individuals in a Specified Service Trade or Business (SSTB) under section 199A are not eligible. Employees whose employer is in an SSTB are not eligible.
• Taxpayers are required to:
  • File jointly if married, to claim the deduction.
  • Include their Social Security Number on the return.

Examples of Likely Ineligible Individuals and Occupations:

• Non-customary tipped jobs:
  • Fast food workers
  • Back-of-house restaurant staff
  • Concession stand attendants
  • Counter-only baristas or cashiers in takeout-only locations
  • Retail store cashiers and stockers
  • Takeout window staff with minimal customer interaction
  • Workers who receive only occasional or unreported tips
  • Supervisors and managersᵛ
• Non-resident aliens:
  • Non-resident aliens are not eligible for the deduction
• Individuals who earn Social Security and Medicare payroll taxes:
  • The deduction only applies to federal income tax. All reported tip income is still subject to Social Security and Medicare taxes, known as FICA taxes, just like regular wages. For 2025, the rates for employees are 6.2% for Social Security and 1.45% for Medicare.
• Income limitations:
  • The deduction disappears completely for single filers with a MAGI over $400,000 and for joint filers with a MAGI over $550,000.

Key Exclusions:

• Service charges and automatic gratuities are not considered voluntary tips.
• Tips must be reported on IRS forms (W-2, 1099, or Form 4137).ᵛᶦ
• Payroll taxes still apply to all tip income.ᵛᶦᶦ
• State tax treatment may vary.ᵛᶦᶦᶦ

How to Claim the Deduction:

For the 2025 tax year, you will claim the deduction on your federal tax return filed in 2026. In 2026, the IRS is expected to adjust withholding tables, then allowing workers to receive the tax benefit with each paycheck.ᶦˣ

Schedule a Meeting with your Financial Professional:

The “No Tax on Tips” provision offers significant tax relief for workers in traditionally tipped roles. However, eligibility is limited to occupations where tipping is a regular and expected part of compensation. Workers in counter-service or fast-food roles may not qualify unless tipping is customary and properly documented. This is a great benefit for the eligible workers who can take advantage of it; however, like anything financial, it may be more complex than you had anticipated. Reach out to us and let us help you work through the numbers and see how they impact your finances now and in the future. We can also help you build goals and design a blueprint on how to work toward those goals.

Please contact your tax advisor or HR department for further clarification on how this provision may apply to your specific role.