The Treasury Department released an expansive preliminary list of occupations that customarily and regularly received tips on or before Dec. 31, 2024, which is relevant for the new “no tax on tips” provisions added by the One Big Beautiful Bill Act (OBBBA).
The OBBBA allows individuals an above-the-line deduction on their Forms 1040 for “qualified tips” received in the 2025 through 2028 calendar years, subject to certain limitations and phaseouts. A qualified tip is an amount paid in cash or by charge card to an individual in an occupation which traditionally received tips, as long as the tip is voluntary. Service charges and automatic tips do not appear to be qualified tips.
The OBBBA also requires service recipients (e.g., employers) to report the amount of qualified tips to workers on a Form W-2 or 1099-NEC, as applicable. The IRS recently announced there will be no changes to individual information returns or federal withholding tables for tax year 2025, despite the enactment of the OBBBA, and the preliminary list does not provide any additional guidance with respect to the 2025 tax year. However, the IRS has released a draft version of the 2026 Form W-2 that introduces new reporting elements aligned with OBBBA’s provisions.
The preliminary list includes 70 “Treasury Tipped Occupation Codes (TTOC),” including the following small sample of categories:
- Beverage and Food Service
- Entertainment and Events
- Hospitality and Guest Services
- Personal Services
- Recreation and Instruction
- Transportation and Delivery
The IRS noted that the official proposed list of tip occupations will be published in the Federal Register as part of forthcoming proposed regulations, which the IRS anticipates will be substantially the same as the preliminary list.
The IRS also noted that the OBBBA provides that tips do not qualify for the deduction if they are received in the course of certain specified trades or businesses -- including the fields of health, performing arts, and athletics – and explained that the IRS anticipates issuing additional guidance on the types of occupations and trades or businesses that are subject to this carve-out.
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