Proposed Rule2025-18278
Occupations That Customarily and Regularly Received Tips; Definition of Qualified Tips
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 22, 2025
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed 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 proposed regulations affect individuals who receive tips as part of their occupation.
Full Text
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<title>Federal Register, Volume 90 Issue 181 (Monday, September 22, 2025)</title>
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[Federal Register Volume 90, Number 181 (Monday, September 22, 2025)]
[Proposed Rules]
[Pages 45340-45361]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-18278]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-110032-25]
RIN 1545-BR63
Occupations That Customarily and Regularly Received Tips;
Definition of Qualified Tips
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and public hearing.
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SUMMARY: This document contains proposed 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 proposed
regulations affect individuals who receive tips as part of their
occupation.
DATES: Written or electronic comments must be received by October 22,
2025. The public hearing is being held on October 23, 2025, at 10 a.m.
Eastern Time (ET). Requests to speak and outlines of topics to be
discussed at the public hearing must be received by October 22, 2025.
If no outlines are
[[Page 45341]]
received by October 22, 2025, the public hearing will be cancelled.
Requests to attend the public hearing must be received by 5 p.m. ET on
October 21, 2023.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and REG-110032-25) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Public
Hearing'' section. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn. The Department of the Treasury
(Treasury Department) and the IRS will publish for public availability
any comments submitted to the IRS's public docket. Send paper
submissions to: CC:PA:01:PR (REG-110032-25), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC
20044.
FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations,
Stephanie Caden or Andrew Holubeck at (202) 317-4774; concerning
submission of comments or the public hearing, please contact
Publications and Regulations Section at (202) 317-6901 (not toll-free
numbers) or by email at <a href="/cdn-cgi/l/email-protection#e09095828c898388858192898e8793a0899293ce878f96"><span class="__cf_email__" data-cfemail="ec9c998e80858f84898d9e85828b9fac859e9fc28b839a">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This notice of proposed rulemaking contains proposed amendments
that would add new regulations 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. The proposed 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
proposed 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. In addition, the proposed 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
Under section 61(a), 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 Sec. 1.61-2(a).\1\
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\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.
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Section 63(a) defines taxable income 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), or are reported by the taxpayer on
Form 4137 (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. The deduction
phases out for taxpayers with modified adjusted gross income over
$150,000 ($300,000 for joint filers).
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\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.
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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:
<bullet> Is paid voluntarily without any consequence in the event
of nonpayment, is not the subject of negotiation, and is determined by
the payor;
<bullet> 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
<bullet> 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 received in the course of a trade or
business is a specified 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
[[Page 45342]]
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), 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, 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 Beautifull 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.
Explanation of Provisions
1. Qualified Tips
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. Consistent with section 224(d), the proposed regulations
would define ``qualified tips'' as amounts received as cash tips by an
individual in an occupation that customarily and regularly received
tips on or before December 31, 2024, subject to certain limitations.
The proposed regulations would define 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. Cash tips would 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 (such as most digital assets). For purposes of these proposed
regulations, tips would be 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. These definitions are consistent with IRS guidance
defining tips for FICA and income tax withholding purposes in
Sec. Sec. 31.3121(a)(12)-1 and 31.3401(a)(16)-1, as well as other IRS
guidance concerning tips in Notice 2023-13, 2023-9 I.R.B. 534, and Rev.
Rul. 2012-18, 2012-26 I.R.B. 1032.
A. Payments Must Be Voluntary
Section 224(d)(2)(A) provides that ``qualified tips'' must be paid
voluntarily without any consequence in the event of nonpayment, must
not be the subject of negotiation, and must be determined by the payor.
In Revenue Ruling 2012-18, the IRS applied similar factors in
distinguishing tips from non-tip wages, specifically service charges,
for FICA and income tax withholding purposes. 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. Consistent with both existing IRS guidance on tips and
evolving practices concerning service charges, the proposed regulations
would clarify that service charges, automatic gratuities, and other
mandatory amounts automatically added to a customer's bill by the
vendor or establishment, are not qualified tips for purposes of section
224(d) unless the customer is expressly provided an option to disregard
or modify it without consequence.
B. Special Rules Regarding a Specified Service Trade or Business
Section 224(d)(2)(B) provides that qualified tips do not include
those received in the course of a trade or business that is a specified
service trade or business (SSTB) as defined in section 199A(d)(2).
Under section 199A(d)(2), an SSTB is defined as any trade or business
(A) involving the performance of services in the fields of health, law,
accounting, actuarial science, performing arts, consulting, athletics,
financial services, brokerage services, or any trade or business where
the principal asset of such trade or business is the reputation or
skill of one or more of its employees or owners, or (B) that involves
the performance of services that consist of investing and investment
management, trading, or dealing in securities (as defined in section
475(c)(2)), partnership interests, or commodities (as defined in
section 475(e)(2)).\3\ Treasury regulations in Sec. 1.199A-5(b)(2)
further define what it means to perform services in the fields listed
in section 199A(d)(2)(A). For example, Sec. 1.199A-5(b)(2)(vi)
provides, in part, that the meaning of services performed in the
performing arts means ``the performance of services by individuals who
participate in the creation of performing arts, such as actors,
singers, musicians, entertainers, directors, and similar professionals
performing services in their capacity as such.'' The regulations
further provide that, `[t]he performance of services in the field of
performing arts does not include the provision of services that do not
require skills unique to the creation of performing arts, such as the
maintenance and operation of equipment or facilities for use in the
performing arts. . . . [or the] provision of services by persons who
broadcast or otherwise disseminate video or audio of performing arts to
the public.'' The proposed regulations would provide that an amount
received by an individual in the course of an SSTB (as defined in
section 199A(d)(2) and Sec. 1.199A-5(b)) is not a qualified tip. The
Treasury Department and the IRS
[[Page 45343]]
request comments on the application of the existing rules under Sec.
1.199A-5(b) to the SSTB definition in section 224. Specifically,
comments are requested concerning whether the definitions in Sec.
1.199A-5(b) should be refined for section 224 purposes.
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\3\ Section 199A(d)(2) cross references the qualified trade or
business definition in section 1202(e)(3)(A), with certain
modifications.
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Consistent with the flush language in section 224(d)(2), the
proposed regulations would also provide that 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. The proposed regulations would clarify that this
rule applies without regard to whether an owner of the trade or
business is able to claim a section 199A deduction. For example, this
rule applies if the employer is a corporation, even though corporations
are not eligible for the deduction under section 199A.
The proposed regulations would also clarify that this rule applies
even if the employee receiving tips in the course of working for an
SSTB employer is working in an occupation that customarily and
regularly received tips on or before December 31, 2024, for purposes of
section 224(d)(1) and is listed in proposed Sec. 1.224-1(f). The
proposed regulations would provide examples illustrating this rule.
C. Determining Qualified Tips for Employees Who Participate in
Voluntary Tip Reporting Programs With Tip Rates
Employees who enter into a Tipped Employee Participation Agreement
as part of the Tip Rate Determination Agreement (TRDA) program or a
Model Gaming Employee Tip Reporting Agreement as part of the Gaming
Industry Tip Compliance Agreement (GITCA) program agree to report tips
to their employer at or above the tip rate established by their
employer for their occupational category. In exchange for the
employees' voluntary agreement to report tips at this agreed upon rate,
the IRS provides tip examination protection to the employees for the
taxable years in which their agreements were in effect. The proposed
regulations would clarify that ``qualified tips'' include tips reported
pursuant to an agreement under the TRDA or GITCA program provided that
the participating employee in the TRDA or GITCA program is otherwise
eligible for the deduction under section 224, and reports tips using
the tip rates established under their agreement. Additionally, the
proposed regulations would clarify that an employee participating in
the TRDA or GITCA program may report additional qualified tips to the
IRS on the Form 4137.
D. Other Requirements
Section 224(d)(2) provides that the term ``qualified tips'' does
not include amounts received by an individual unless such other
requirements as may be established by the Secretary in regulations or
other guidance are satisfied. The proposed regulations would provide
that amounts received for services the performance of which is a felony
or misdemeanor under applicable law are not qualified tips. In
addition, the proposed regulations would provide that amounts received
for prostitution services and pornographic activity are not qualified
tips. Finally, to prevent reclassification of income as qualified tips,
and to prevent abuse of the deduction, the proposed regulations would
also provide 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.
2. Trade or Business Limitations
Section 224(c) imposes a limitation on a taxpayer who receives tips
in the course of a trade or business (other than the trade or business
of performing services as an employee). The proposed regulations would
restate the statutory limit, which is the difference between the gross
income from the taxpayer's trade or business for the taxable year minus
the sum of deductions (other than the deduction for qualified tips) for
that trade or business for the taxable year. The proposed regulations
would clarify that the deduction allowed for qualified tips is not
taken into account for this purpose because it is not a deduction
associated with a trade or business.
3. Social Security Numbers and Married Individuals
The proposed regulations would clarify that a taxpayer must include
on the tax return for the taxable year the SSN, within the meaning of
section 24(h)(7), of the individual who has received the tips. The
proposed regulations would also restate the statutory requirement that
a taxpayer who is married, within the meaning of section 7703, must
file a joint return with the taxpayer's spouse to claim the deduction
allowed by section 224. The proposed regulations would further clarify
that married taxpayers are only required to include the SSN of the
taxpayer who has received the qualified tips to claim the deduction,
and that an SSN is required of both taxpayers only when both have
qualified tips for which they are claiming a deduction.
The proposed regulations would also clarify 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 provide that the amount is
subject to the phase-out based on the taxpayers' modified adjusted
gross income described in section 224(b)(2).
4. Occupations That Customarily and Regularly Received Tips on or
Before December 31, 2024
Under section 224(d)(1), ``qualified tips'' are ``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.'' In addition, 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, for purposes of
section 224(d)(1).
A. Methodology
The Treasury Department and the IRS drafted the proposed list of
occupations that customarily and regularly received 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''
regarding tips,\4\ the Treasury Department and the IRS looked to
dictionary definitions and other statutory provisions for guidance. The
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Oxford English dictionary defines the term ``customarily'' as ``[i]n a
way that follows customs or usual practices; according to custom;
usually; habitually.'' \5\ It defines ``regularly'' as ``in conformity
to a general rule or established principle; in a steady, predictable,
or uniform manner; at fixed times or uniform intervals; repeatedly,
without interruption; frequently, often.'' \6\
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\4\ The Code does use the term ``customarily'' in section
6053(c)(3). Section 6053(c)(3) requires large food or beverage
establishments to allocate tips among ``employees performing
services during any payroll period who customarily receive tip
income.'' Section 6053(c)(4) defines the term ``large food or
beverage establishment'' as a trade or business ``with respect to
which the tipping of employees serving food or beverages by
customers is customary.'' Regulations under section 6053(c) provide
further guidance concerning the term ``customary.'' Section 31.6053-
3(j)(6) excludes ``fast food'' operation from the definition of
``food or beverage operation.'' Section 31.6053-3(j)(7) provides
that, for purposes of defining ``large food or beverage
establishments,'' tipping would not be considered customary for a
cafeteria style operation or for a food or beverage operation where
at least 95% of its total sales are nonallocable receipts (defined
as carryout sales and sales with service charges). A ``cafeteria
style operation'' is defined in Sec. 31.6053-3(j)(18) as a food or
beverage operation which is primarily self-service and in which the
total cost of food or beverages selected by a customer is paid prior
to the customer's being seated or is stated on a check provided to
the customer prior to the customer's being seated and is paid by the
customer to a cashier.
\5\ Oxford University Press. (n.d.). Customarily, adv. In Oxford
English dictionary. Retrieved July 31, 2025, from <a href="https://doi.org/10.1093/OED/1071895970">https://doi.org/10.1093/OED/1071895970</a>.
\6\ Oxford University Press. (n.d.). Regularly, adv., 1.a. In
Oxford English dictionary. Retrieved July 31, 2025, from <a href="https://doi.org/10.1093/OED/1195323874">https://doi.org/10.1093/OED/1195323874</a>.
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The Fair Labor Standards Act (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\ In guidance, and in opinion letters based
on specific factual scenarios presented, DOL's Wage and Hour Division
(WHD) has looked to the FLSA's statutory text, its legislative history,
and the extent to which employees in the occupation interact with
customers to determine whether an employee customarily and regularly
receives tips for purposes of the FLSA. Courts similarly have
considered whether an employee is in an occupation that customarily and
regularly receives tips for purposes of the FLSA.\11\ Based on these
definitions and the 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 the occupation to be an occupation that
customarily and regularly received tips on or before December 31, 2024.
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\7\ Under the FLSA, employers take a tip credit of up to $5.12
per hour to bring an employee's total earnings up to the Federal
minimum wage amount. See 29 U.S.C. 203(m)(2)(A)(i)-(ii); see also
Fair Labor Standards Amendments of 1989, Public Law 101-157, 5, 103
Stat. 938, 941 (1989) (requiring employers to pay directly at least
``50 percent of the [$4.25 per hour] minimum wage rate after March
31,1991'').
\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, Sec. 30d08. Retrieved
August 19, 2025, from <a href="https://www.dol.gov/agencies/whd/field-operations-handbook">https://www.dol.gov/agencies/whd/field-operations-handbook</a>; see also 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, e.g., Wai Man Tom v. Hosp. Ventures LLC, 980 F.3d
1027, 1040 (4th Cir. 2020); Montano v. Montrose Rest. Assocs., Inc.,
800 F.3d 186, 191 (5th Cir. 2015) (finding that ``[t]he common
thread of the cases and the DOL opinion letters is to require a
tipped employee to have more than a de minimis interaction with the
customers who leave the undesignated tips'' for purposes of the FLSA
tip credit.); Myers v. Copper Cellar Corp., 192 F.3d 546, 550-51
(6th Cir. 1999); Kilgore v. Outback Steakhouse of Fla., Inc., 160
F.3d 294, 301 (6th Cir. 1998) (noting that restaurant hosts
``sufficiently interact with customers in an industry where
undesignated tips are common.'').
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With these parameters in mind, the Treasury Department and the IRS
reviewed data collected from 2023 Forms W-2, Wage and Tax
Statement,\12\ and Forms 4137, Social Security and Medicare Tax on
Unreported Tip Income, and corresponding income tax returns (Forms
1040) that reported tips in box 7 of Form W-2 (Social Security tips) or
on Line 4 of an attached Form 4137. The Treasury Department and the IRS
identified occupations listed on income tax returns (as reported on
page 2 of Form 1040 next to the taxpayer's signature) as having
customarily and regularly received tips, based on the percentage of
wage earners who reported a given occupation in the tax return data and
also reported at least $100 in annual tipped income.
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\12\ 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 have reviewed preliminary
data for the 2024 tax year and anticipate that final 2024 data will
be substantially similar to 2023 data.
---------------------------------------------------------------------------
The Treasury Department and the IRS next determined that the data
was subject to limitations that resulted in under-inclusion because the
data was limited to the tax return data of individuals who reported
tips to employers and received a Form W-2 or who filed Form 4137.
Individuals working in certain occupations, such as rideshare drivers,
receive tips but may operate as independent contractors rather than
employees, and therefore do not receive a Form W-2 reporting tips, nor
do they separately report their tip income for income tax purposes.\13\
Because tips were not separately reported on Forms 1099-NEC,
Nonemployee Compensation, 1099-MISC, Miscellaneous Information, or
1099-K, Payment Card and Third Party Network Transactions, certain
occupations that received tips were not reflected in the income tax
return data. In addition, the Treasury Department and IRS determined
that the data may have been overinclusive due to variations in how
taxpayers chose to write their occupation on Form 1040. For example,
the self-reported occupation may have typographical errors or
abbreviations, or taxpayers may have written multiple occupations on
their Form 1040, separated by a comma or a slash mark (like
``Occupation 1/Occupation 2'').\14\ These
[[Page 45345]]
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 had more
variations in how they were reported (for example, server, waitstaff,
waitress, waiter).
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\13\ While tip income must be included in the total income that
independent contractors report on their income tax returns,
independent contractors did not separately report tips on their
income tax returns and payors did not separately report tips to
payees on Forms 1099.
\14\ Taxpayers have a single line to report their occupation on
the Form 1040. The 1040 instructions do not address how to report
multiple occupations. Some taxpayers reported more than one
occupation. Additionally, some taxpayers with multiple jobs only
reported one occupation. When analyzing the tax return data, it was
sometimes difficult to determine which occupation resulted in the
receipt of tips. Therefore, the Treasury Department and the IRS
limited the main analysis of the tax return data to taxpayers with
only one job by limiting the data to taxpayers who submitted one
Form W-2 with their Form 1040, did not file a Schedule C or Schedule
F, and reported no active income from a partnership or S corporation
on Schedule E.
---------------------------------------------------------------------------
To account for these limitations, the Treasury Department and the
IRS examined occupations identified in the GITCA program, a voluntary
tip reporting program for the gaming industry run by the IRS, and other
similar IRS tip reporting programs as occupations that received tips on
or before December 31, 2024. See Rev. Proc. 2007-32, 2007-22 I.R.B.
1322.\15\ The IRS has been collecting tip data through its GITCA
program (and other voluntary tip reporting programs) for over 20 years.
The GITCA program requires participating employers to provide annual
reports to the IRS that contain information regarding employees'
occupational categories, shifts, and outlets; gross receipts subject to
food and beverage tipping; and aggregated receipts showing charged tips
and reported tips. The occupations identified as having customarily and
regularly received tips based on the GITCA data were largely consistent
with those identified by the confidential tax return data.
---------------------------------------------------------------------------
\15\ The GITCA program was established by Rev. Proc. 2003-35,
2003-20 I.R.B. 919, and was updated by Rev. Proc. 2007-32 with a new
model GITCA. Revenue Procedure 2020-47, 2020-48 I.R.B. 1121 modified
Rev. Proc. 2007-32 to provide that the term of a GITCA is generally
five years.
---------------------------------------------------------------------------
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. In the
explanation of the deduction for qualified tips under section 224, the
report describes occupations that traditionally and customarily
received tips on or before December 31, 2024, as including, but not
limited to, restaurant servers, bartenders, taxi drivers, rideshare
drivers, food delivery drivers, hairdressers, hairstylists, hotel
bellhops, hotel housekeepers, and casino dealers.\16\ To the extent
those occupations were not already captured by the IRS data, they were
added to the list.
---------------------------------------------------------------------------
\16\ Initial drafts of the OBBBA legislation contemplated a
deduction for tips received by individuals in occupations that
traditionally and customarily received tips, but this language was
later revised to refer to occupations that customarily and regularly
received tips.
---------------------------------------------------------------------------
Finally, the Treasury Department and the IRS examined survey data
from the Panel Study of Income Dynamics that included information on
occupations and tip income of both employees and self-employed
individuals. The Panel Study of Income Dynamics is a nationally
representative survey conducted by the University of Michigan. It
includes questions about the occupation of, and tip income received by,
the reference person and the person's spouse (if they are married). The
Treasury Department and the IRS consulted data from surveys conducted
in years 2017, 2019, and 2023 (surveys which inquired about tips
received in 2016, 2018, and 2022, respectively), which is the most
recent data available (except for 2021, which was avoided due to any
potential abnormalities related to the COVID-19 pandemic). The
occupations identified as having customarily and regularly received
tips based on this survey data were largely consistent with those
identified by the confidential tax return data.
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 service
industries, 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.
In defining ``cash tips,'' section 224(d)(3) ``includes tips
received from customers . . ., and, in the case of an employee, tips
received under any tip-sharing arrangement.'' 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 that
interact with customers. While certain employees in tip-sharing
arrangements may not have extensive, or any, customer interaction, they
do assist employees who do interact with customers or otherwise
contribute to the overall customer experience. For this reason, the
Treasury Department and the IRS have proposed that certain occupations
that may not involve direct interactions with customers should still be
considered occupations that customarily and regularly received tips if
employees in such occupations participated in tip-sharing arrangements
such as tip pooling or tip-outs with employees who do interact with
customers. For example, dishwashers reported receiving sufficient tips
to appear in the IRS data and, even though they do not typically
interact with customers, they may sometimes participate in tip-sharing
arrangements with employees who do interact with customers (for
example, waitstaff). Accordingly, dishwashers are included in the
proposed list of occupations that customarily and regularly received
tips for purposes of section 224.
The Treasury Department and the IRS recognize that courts and DOL
have interpreted the FLSA standard for customarily and regularly
somewhat differently, but this interpretation is due to differences in
the specific language, purpose, and history of the FLSA tip credit and
mandatory tip-sharing arrangement provisions. For instance, the FLSA
provides that when an employer takes a tip credit, the employer may
only require ``the pooling of tips among employees who customarily and
regularly receive tips.'' 29 U.S.C. 203(m)(2)(A). This presumes that
the employee has some level of interaction with customers to
``customarily and regularly'' receive tips under the FLSA.\17\ In
contrast, section 224(d)(3) specifically defines ``cash tips'' to
include both tips received from customers and, in the case of an
employee, tips received under any tip-sharing arrangement.
---------------------------------------------------------------------------
\17\ See Montano v. Montrose Rest. Assocs., Inc., 800 F.3d 186,
189 (5th Cir. 2015) (noting that ``[i]t would be circular'' to
interpret the FLSA to mean that if an employer requires a tipped
employee to give another employee tips, that employee customarily
and regularly receives tips for purposes of 29 U.S.C. 203(m)(2)(A)'s
tip pooling limitation).
---------------------------------------------------------------------------
After compiling the list of occupations that customarily and
regularly received tips, the Treasury Department and the IRS compared
the proposed list of occupations that customarily and regularly
received tips for purposes of section 224 to occupations contained in
the 2018 Standard Occupation Classification (SOC) code. The SOC Code
system is published by the Executive Office of the President, Office of
Management and Budget (OMB). The SOC Code system is a Federal
statistical standard used by Federal agencies to classify workers into
[[Page 45346]]
occupational categories for the purpose of collecting, calculating, or
disseminating data.\18\ The SOC Code system classifies paid work or
work for profit into occupational categories based on the work
performed. All workers are classified into one of 867 detailed
occupations according to their occupational definition.\19\ To
facilitate classification, detailed occupations are combined to form
459 broad occupations, 98 minor groups, and 23 major groups.\20\
Detailed occupations in the SOC with similar job duties, and in some
cases skills, education, and/or training, are grouped together. The
Treasury Department and the IRS focused on the detailed occupations in
the SOC Code system. However, in the process of compiling this list,
the Treasury Department and the IRS determined that several of the
detailed SOC codes included, in the same detailed SOC code, some
occupations that customarily and regularly received tips on or before
December 31, 2024, and other occupations that did not.\21\
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\18\ Office of Management and Budget. (2018). Standard
Occupational Classification Manual. U.S. Government Publishing
Office. This manual and other related SOC documents can be found at
<a href="https://www.bls.gov/soc">https://www.bls.gov/soc</a>.
\19\ Id.
\20\ Id.
\21\ For instance, 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.'' More
specific occupations that would fall under this description include
both pet caretakers and zookeepers. Pet caretakers customarily and
regularly receive tips. Zookeepers, on the other hand, do not. 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.
---------------------------------------------------------------------------
To address the issue of the over-inclusivity of certain SOC codes,
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.
However, in situations where the SOC code was overly inclusive, the new
system provides an occupation code, description, and illustrative
examples that only encompass occupations that customarily and regularly
received tips on or before December 31, 2024.
In addition, in certain situations where multiple detailed SOC
codes described occupations that had similar titles, the new system
provides an occupation code, description, and illustrative examples
that stem from multiple detailed SOC codes. For example, detailed SOC
codes for a variety of chefs and cooks were aggregated in the new
system into a single occupation code.
Lastly, in certain situations, some detailed SOC codes were split
into multiple occupation codes under the new system. For example,
chauffeurs were moved from the SOC occupation ``Shuttle Drivers and
Chauffeurs'' to the ``Taxi Driver'' occupation, thus creating under the
new system two occupations: ``Taxi and Rideshare Drivers and
Chauffeurs'' and ``Shuttle Drivers.''
B. List of Occupations That Customarily and Regularly Received Tips On
or Before December 31, 2024
The proposed regulations would include the list of occupations that
customarily and regularly received tips on or before December 31, 2024
(List of Occupations that Receive Tips), that was compiled based on the
methodology described in this preamble. In accordance with statutory
language in section 224(d)(1), the proposed regulations would provide
that only occupations included in the List of Occupations that Receive
Tips are eligible for the deduction in section 224(a).
This List of Occupations that Receive Tips would be organized
according to the new categorization system created by the Treasury
Department and the IRS specifically for this purpose, as described in
this preamble. The specific occupations in the List of Occupations that
Receive Tips, each assigned a three-digit code called a ``Treasury
Tipped Occupation Code'' or ``TTOC'' would be grouped together in the
following more general occupational categories:
100s--Beverage and Food Service
200s--Entertainment and Events
300s--Hospitality and Guest Services
400s--Home Services
500s--Personal Services
600s--Personal Appearance and Wellness
700s--Recreation and Instruction
800s--Transportation and Delivery
The List of Occupations that Receive Tips also provides the ``TTOC
Occupation Title'' for each occupation code, a short description of the
types of services performed by individuals working in an occupation
included in this occupation code, illustrative examples of specific
occupations that would be included under the occupation code, and the
related SOC System Code(s).
Proposed Applicability Dates
These regulations are proposed to apply for taxable years beginning
after December 31, 2024. Taxpayers may rely on these 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 these 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 proposed regulations have been designated by the 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 proposed 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 proposed 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,\22\ 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).
---------------------------------------------------------------------------
\22\ References to a ``section'' are to a section of the
Internal Revenue Code of 1986, as amended (Code), unless otherwise
indicated.
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[[Page 45347]]
The proposed 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 proposed 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 proposed regulations is to provide
guidance on requirements of section 224 to claim the deduction,
including the definition of ``cash tips;'' determinations of whether
the tips received were in the course of a trade or business which is a
specified service trade or business; 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), section 224 applies
only if the taxpayer and the taxpayer's spouse file a joint return for
the taxable year. The proposed 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 Proposed 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 proposed regulations clarify
that ``cash tips'' are amounts received from customers or, in the case
of an employee, 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. 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 (such as most digital assets).
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.'' 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
proposed regulations would 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 proposed regulations clarify that the section 224(d)(2)(A) term
``qualified tips'' only includes amounts that are paid voluntarily
without any consequence in the event of nonpayment, are not the subject
of negotiation, and are determined by the payor. The proposed
regulations clarify that the section 224(d)(2)(B) term ``qualified
tips'' excludes tips received by an individual who is self-employed in
a specified service trade or business (SSTB) as defined in section
199A(d)(2) or by an employee performing services for the employee's
employer in the course of an SSTB operated by the employer. The
proposed 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 proposed regulations provide that amounts
received for prostitution services and pornographic activity are not
included in the definition of ``qualified tips.'' The proposed
regulations also clarify that a payment is not considered a ``qualified
tip'' if the tip recipient has an ownership interest in or is employed
by the payor of the 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 the individual's trade or business minus the sum of the
individual's deductions (other than the deduction for qualified tips)
that are allocable to that trade or business. The proposed 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 proposed 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. 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 proposed 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 proposed 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 proposed regulations clarify that the phaseout based
on MAGI is applied after applying the $25,000 limit to the deduction.
The proposed 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
[[Page 45348]]
the occupation, illustrative examples of specific occupations that
would be included, and the Standard Occupation Classification (SOC)
system code(s) that are related to the occupation.
II. Baseline
The Treasury Department and the IRS have assessed the benefits and
costs of the proposed regulations relative to a no-action baseline
reflecting anticipated Federal income tax-related behavior in the
absence of these proposed 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 proposed 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 Proposed Regulations
The Treasury Department and the IRS analyzed the economic effects
of the proposed 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 proposed regulations are small.
i. List of Occupations That Receive Tips
The proposed 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 proposed
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. 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 inclusion of occupations that may not interact with customers
but received tips from tip-sharing arrangements with individuals who
interacted with customers departs from the interpretation of the term
``customarily and regularly received tips'' that courts and the DOL
have used regarding the FLSA.\23\ The prior guidance and court cases
related to the FLSA require that the employee has some level of
interaction with customers in order to be considered an occupation that
customarily and regularly receives tips.\24\ However, this is due to
differences in the specific language, purpose, and history of the FLSA
tip credit and mandatory tip-sharing arrangement provisions. For
instance, the FLSA provides that when an employer takes a tip credit,
the employer may require ``the pooling of tips'' only among employees
who customarily and regularly receive tips, 29 U.S.C. 203(m)(2)(A);
this presumes that, under the FLSA, an employee is not customarily and
regularly tipped merely by virtue of receiving tips from a pool. In
contrast, section 224(d)(3) defines ``cash tips'' to include both tips
receive from customers and, in the case of an employee, tips received
under any tip-sharing arrangement. As a result, occupations in which
employees are commonly included in tip-sharing arrangements would be
considered as having ``customarily and regularly'' received tips for
purposes of the deduction for qualified tips under section 224.
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\23\ See supra, Explanation of Provisions, Sec. 4.A.
\24\ See Montano v. Montrose Rest. Assocs., Inc., 800 F.3d 186,
189 (5th Cir. 2015) (noting that ``[i]t would be circular'' to
interpret the FLSA to mean that if an employer requires a tipped
employee to give a second employee tips, that second employee
customarily and regularly receives tips for purposes of 29 U.S.C.
203(m)(2)(A)'s tip pooling limitation).
---------------------------------------------------------------------------
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 code, 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 System
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 customarily and regularly received 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 proposed 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 system.\25\ However,
the Treasury
[[Page 45349]]
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 received tips. Thus, if the
``Animal Caretakers'' SOC Code were included in the list of occupations
that customarily and regularly received tips, then zookeepers would
become part of the list via their corresponding SOC Code, even though
they did not customarily and regularly receive tips. Thus, using the
SOC system alone was not sufficient for creating the List of
Occupations that Receive Tips.
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\25\ 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 documents can be found at <a href="https://www.bls.gov/soc">https://www.bls.gov/soc</a>.
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For the method that was selected instead of using the SOC 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 of these
codes 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 the
taxpayer's 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
related to their rideshare activity. 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 typographical errors or abbreviations, or taxpayers
may write multiple occupations separated by a comma or a slash mark,
like ``Occupation 1/Occupation 2.'' \26\ 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.
---------------------------------------------------------------------------
\26\ 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.''
---------------------------------------------------------------------------
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. 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) System
Code(s). (As previously described, the List of Occupations that Receive
Tips in Table 1 of the proposed 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.).'' \27\
---------------------------------------------------------------------------
\27\ Since tips are reported separately from other compensation
for employees but not for self-employed individuals 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.
---------------------------------------------------------------------------
Table A shows the percentage of individuals within the Related SOC
code(s) 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.
Table A also 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, 34.2 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
[[Page 45350]]
``Gambling Dealers'' who had reported tips on Form W-2 or Form 4137,
reported tips were 70.7 percent of wage compensation.
Table A--Reported Tips of Single-Job Holders, Tax Year 2023
----------------------------------------------------------------------------------------------------------------
Reported
Percent Percent tips as
Treasury tipped TTOC occupation with of all percent of Related standard occupational
occupation code title reported reported wages of classification (SOC) system code
(TTOC) tips \1\ tips \2\ tipped
workers \3\
----------------------------------------------------------------------------------------------------------------
Beverage & Food Service
----------------------------------------------------------------------------------------------------------------
101............... Bartenders...... 82.8 9.8 63.4 35-3011.
102............... Wait Staff...... 74.6 34.2 63.5 35-3031.
103............... Food Servers, 30.4 0.1 33.0 35-3041.
Nonrestaurant.
104............... Dining Room and 38.9 1.0 44.8 35-9011.
Cafeteria
Attendants and
Bartender
Helpers.
105............... Chefs and Cooks. 12.8 2.0 17.1 35-1011, 35-2011, 35-2013, 35-2014, 35-
2019.
106............... Food Preparation 21.4 3.3 33.5 35-1012, 35-2021, 35-9099.
Workers.
107............... Fast Food and 40.1 1.4 17.9 35-3023.
Counter Workers.
108............... Dishwashers..... 11.0 0.1 15.8 35-9021.
109............... Host Staff, 46.3 0.8 35.3 35-9031.
Restaurant,
Lounge, and
Coffee Shop.
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, 39-3013.
202............... Gambling Change 78.0 0.4 64.8 41-2012.
Persons and
Booth Cashiers.
203............... Gambling Cage 37.6 0.2 57.7 43-3041.
Workers.
204............... Gambling and 30.0 (*) 43.3 39-3012.
Sports Book
Writers and
Runners.
205............... Dancers......... 8.8 (*) 54.3 27-2031.
206............... Musicians and 2.9 (*) 36.8 27-2042.
Singers.
207............... Disc Jockeys, 15.7 (*) 44.9 27-2091.
Except Radio.
208............... Entertainers and 7.9 (*) 52.0 27-2099.
Performers.
209............... Digital Content 7.9 (*) 52.0 27-2099.
Creators.
210............... Ushers, Lobby 3.1 (*) 11.6 39-3031.
Attendants, and
Ticket Takers.
211............... Locker Room, 12.0 (*) 19.1 39-3093.
Coatroom, and
Dressing Room
Attendants.
----------------------------------------------------------------------------------------------------------------
Hospitality & Guest Services
----------------------------------------------------------------------------------------------------------------
301............... Baggage Porters 7.0 0.1 18.6 39-6011.
and Bellhops.
302............... Concierges...... 3.7 (*) 11.7 39-6012.
303............... Hotel, Motel, 11.7 0.7 42.8 43-4081.
and Resort Desk
Clerks.
304............... Maids and 2.7 0.1 10.6 37-2012.
Housekeeping
Cleaners.
----------------------------------------------------------------------------------------------------------------
Home Services
----------------------------------------------------------------------------------------------------------------
401............... Home Maintenance 0.5 0.1 16.1 49-9071, 49-9098, 49-9099, 49-9063, 49-
and Repair 2097, 51-7021.
Workers.
402............... Home Landscaping 0.5 (*) 14.0 37-3011.
and
Groundskeeping
Workers.
403............... Home 0.1 (*) 10.6 47-2111.
Electricians.
404............... Home Plumbers... 0.2 (*) 5.1 47-2152.
405............... Home Heating and 0.2 (*) 4.0 49-9021.
Air
Conditioning
Mechanics and
Installers.
406............... Home Appliance 1.8 (*) 1.9 49-9031.
Installers and
Repairers.
407............... Home Cleaning 2.7 0.1 10.6 37-2012.
Service Workers.
408............... Locksmiths...... 2.0 (*) 3.1 49-9094.
409............... Roadside 0.2 (*) 10.8 49-3023, 53-3032.
Assistance
Workers.
----------------------------------------------------------------------------------------------------------------
Personal Services
----------------------------------------------------------------------------------------------------------------
501............... Personal Care 0.6 0.1 31.1 31-1122, 39-9099.
and Service
Workers.
502............... Private Event 5.9 0.1 16.3 13-1121, 27-1023.
Planners.
503............... Private Event 2.3 (*) 22.0 27-4021.
and Portrait
Photographers.
504............... Private Event (*) (*) (*) 27-4031.
Videographers.
505............... Event Officiants 0.2 (*) 16.8 21-2011.
506............... Pet Caretakers.. 19.1 0.3 16.2 39-2021.
507............... Tutors.......... 0.5 (*) 34.5 25-3041.
508............... Nannies and 0.7 (*) 28.8 39-9011.
Babysitters.
----------------------------------------------------------------------------------------------------------------
Personal Appearance & Wellness
----------------------------------------------------------------------------------------------------------------
601............... Skincare 54.7 0.5 24.4 39-5094.
Specialists.
[[Page 45351]]
602............... Massage 55.8 0.6 25.7 31-9011.
Therapists.
603............... Barbers, 52.4 3.2 22.7 39-5012, 39-5011.
Hairdressers,
Hairstylists,
and
Cosmetologists.
604............... Shampooers...... (*) (*) (*) 39-5093.
605............... Manicurists and 36.2 0.3 14.9 39-5092.
Pedicurists.
606............... Makeup Artists.. 13.1 (*) 14.8 39-5091.
607............... Exercise 1.0 (*) 25.8 39-9031.
Trainers and
Group Fitness
Instructors.
608............... Tattoo Artists 11.1 (*) 15.8 27-1019.
and Piercers.
609............... Tailors......... 0.8 (*) 15.9 51-6052.
610............... Shoe and Leather (*) (*) (*) 51-6041.
Workers and
Repairers.
611............... Eyebrow 53.2 3.0 22.6 39-5012.
Threading and
Waxing
Technicians.
----------------------------------------------------------------------------------------------------------------
Recreation & Instruction
----------------------------------------------------------------------------------------------------------------
701............... Golf Caddies.... 8.0 (*) 27.9 39-3091.
702............... Self-Enrichment 1.9 (*) 7.5 25-3021.
Teachers.
703............... Sports and 1.9 (*) 7.5 25-3021.
Recreation
Instructors.
704............... Tour Guides..... 14.2 (*) 17.1 39-7011.
705............... Travel Guides... 13.3 (*) 16.2 39-7012.
706............... Recreational and (*) (*) (*) 53-2012.
Tour Pilots.
----------------------------------------------------------------------------------------------------------------
Transportation & Delivery
----------------------------------------------------------------------------------------------------------------
801............... Parking and 17.4 0.1 21.5 53-6021.
Valet
Attendants.
802............... Taxi and 24.9 (*) 21.2 53-3054.
Rideshare
Drivers and
Chauffeurs.
803............... Shuttle Drivers. 16.7 0.1 28.0 53-3053.
804............... Goods Delivery 3.7 0.5 30.0 53-3031.
People.
805............... Personal Vehicle 4.8 (*) 12.4 53-7061.
and Equipment
Cleaners.
806............... Private and 0.7 (*) 9.9 53-3052.
Charter Bus
Drivers.
807............... Water Taxi (*) (*) (*) 53-5022.
Operators and
Charter Boat
Workers.
808............... Rickshaw, 0.8 (*) 21.4 53-6099.
Pedicab, and
Carriage
Drivers.
809............... Home Movers..... 2.5 2.8 32.8 53-7062.
---------------------------------------------------------------------------
Total......... ................ ......... \4\ 67.4 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 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 W-2 sometimes enter an
occupation (character string) that does not correspond to the 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, August 9, 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 proposed 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 proposed
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 receives $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 \28\
received tips on or before December 31, 2024. Thus, prior to reading
the guidance in theses proposed regulations, Employee B might have been
unsure whether her occupation as a makeup artist makes her eligible to
claim the deduction for her 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
[[Page 45352]]
all other requirements to claim the deduction are satisfied).
---------------------------------------------------------------------------
\28\ Initial drafts of the OBBBA legislation contemplated a
deduction for tips received by individuals in occupations that
traditionally and customarily received tips, but this language was
later revised to refer to occupations that customarily and regularly
received tips.
---------------------------------------------------------------------------
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 proposed 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.
However, the Treasury Department and the IRS invite comments on such
costs and data that could be used to analyze these behavioral effects.
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. Employee C receives $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
proposed regulations clarify that the definition of ``qualified tips''
excludes tips received while performing services that violate the
applicable law, Employee C is aware that the $10,000 in tips received
while serving alcohol without a license are not qualified tips, and so
Employee C does not 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 proposed 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 the
$10,000 in tips are considered ``qualified tips'' and Employee D claims
the deduction accordingly.
The clarification in the proposed 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 proposed 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 proposed 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 proposed
regulations would be small. The Treasury Department and the IRS invite
public comments and additional data on the economic effects that would
result from these proposed regulations.
II. Paperwork Reduction Act
This proposed 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 proposed
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 proposed regulations would not impose any new
requirements on small entities but rather provide 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.
Notwithstanding this certification that the proposed regulations
would not have a significant economic impact on a substantial number of
small entities,
[[Page 45353]]
the Treasury Department and the IRS invite comments on the impacts
these proposed regulations may have on small entities.
IV. Section 7805(f)
Pursuant to section 7805(f) of the Code, these proposed regulations
will be submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on their impact on small business.
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 proposed 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 proposed regulations do not
have federalism implications, do not impose substantial direct
compliance costs on State and local governments, and do not preempt
State law within the meaning of the Executive order.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to comments regarding the notice of
proposed rulemaking that are submitted timely to the IRS as prescribed
in this preamble under the ADDRESSES section. The Treasury Department
and the IRS request comments on all aspects of the proposed
regulations. In particular, the Treasury Department and IRS request
comments on the application of the existing rules under Sec. 1.199A-
5(b) to the SSTB definition in section 224, and whether the definitions
in Sec. 1.199A-5(b) should be refined to better align with the anti-
abuse provision in section 224 and the congressional directive for the
Secretary to publish a list of occupations that customarily and
regularly received tips on or before December 31, 2024. Additionally,
Treasury and the IRS are concerned that taxpayers might misclassify
income as tips and request comments on how to address this issue in the
final regulations. All comments will be made available at <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Once submitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
A public hearing has been scheduled for October 23, 2025, beginning
at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111
Constitution Avenue NW, Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. Participants may alternatively attend the public
hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit an outline of
the topics to be discussed and the time to be devoted to each topic by
October 22, 2025. A period of 10 minutes will be allotted to each
person for making comments. An agenda showing the scheduling of the
speakers will be prepared after the deadline for receiving outlines has
passed. Copies of the agenda will be available free of charge at the
hearing. If no outline of the topics to be discussed at the hearing is
received by October 22, 2025, the public hearing will be cancelled. If
the public hearing is cancelled, a notice of cancellation of the public
hearing will be published in the Federal Register.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#bececbdcd2d7ddd6dbdfccd7d0d9cdfed7cccd90d9d1c8"><span class="__cf_email__" data-cfemail="5e2e2b3c32373d363b3f2c3730392d1e372c2d70393128">[email protected]</span></a> to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-110032-25 and the language TESTIFY In Person.
For example, the subject line may say: Request to TESTIFY in Person at
Hearing for REG-110032-25.
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#ccbcb9aea0a5afa4a9adbea5a2abbf8ca5bebfe2aba3ba"><span class="__cf_email__" data-cfemail="1b6b6e79777278737e7a6972757c685b726968357c746d">[email protected]</span></a> to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-110032-25 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-110032-25.
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#94e4e1f6f8fdf7fcf1f5e6fdfaf3e7d4fde6e7baf3fbe2"><span class="__cf_email__" data-cfemail="84f4f1e6e8ede7ece1e5f6edeae3f7c4edf6f7aae3ebf2">[email protected]</span></a> to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-110032-25 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing In Person for REG-110032-25. Requests to attend the
public hearing must be received by 5:00 p.m. ET on October 21, 2025.
Individuals who want to attend the public hearing by telephone
without testifying must also send an email to <a href="/cdn-cgi/l/email-protection#b5c5c0d7d9dcd6ddd0d4c7dcdbd2c6f5dcc7c69bd2dac3"><span class="__cf_email__" data-cfemail="473732252b2e242f2226352e292034072e353469202831">[email protected]</span></a> to
receive the telephone number and access code for the hearing. The
subject line of the email must contain the regulation number REG-
110032-25 and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-110032-25. Requests to attend the public hearing must be received
by 5:00 p.m. ET on October 21, 2025.
Hearings will be made accessible to people with disabilities. To
request special assistance during a hearing please contact the
Publications and Regulations Section of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#d9a9acbbb5b0bab1bcb8abb0b7beaa99b0abaaf7beb6af"><span class="__cf_email__" data-cfemail="2e5e5b4c42474d464b4f5c4740495d6e475c5d00494158">[email protected]</span></a> (preferred) or by telephone at (202) 317-6901
(not a toll-free number) by October 20, 2025.
Drafting Information
The principal author of these proposed regulations is the Office of
Associate Chief Counsel (Employee Benefits, Exempt Organizations and
Employment Taxes). However, other personnel from the IRS and the
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding an
entry for Sec. 1.224-1 in numerical order to read in part as follows:
[[Page 45354]]
Authority: 26 U.S.C. 7805 * * *
* * * * *
Sec. 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.
* * * * *
0
Par. 2. Section 1.224-1 is added to read as follows:
Sec. 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) 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 from the taxable year increased
by any amount excluded from gross income under section 911, section
931, or section 933.
(3) Examples. The following examples illustrate the rules of
paragraphs (b)(1) and (2) of this section.
(4) 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 under section
224(b)(2) is further reduced by $5,000 ($100 x 50), from $25,000 to
$20,000.
(5) Example 2. Employee K satisfies all the requirements under
section 224 and Employee K's filing status for 2025 is single. K
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. K's modified adjusted gross income for 2025 is $180,000. K's
deduction is reduced (but not below zero) by $100 for each $1,000 by
which K's modified adjusted gross income exceeds $150,000 (the
threshold for a single filer). K's modified adjusted gross income
exceeds $150,000 by $30,000. To calculate the deduction, K first
divides $30,000 by $1,000 to get 30. Thus, K's deduction under section
224(b)(2) is reduced by $3,000 ($100 x 30), from $10,000 to $7,000.
(c) Qualified tips defined--(1) In general. Subject to the
requirements in paragraph (c)(3) of this section, 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 (f) of this section.
(2) Cash tips defined. For purposes of paragraph (c)(1) of this
section, cash tips are 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.
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 (such as most digital assets).
For purposes of this paragraph (c)(2), 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.
(3) Amounts must be paid voluntarily. 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. Qualified tips must be paid without
compulsion. Thus, 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. If a customer is expressly
provided an option to disregard or modify amounts added to a bill, such
amounts are not mandatory amounts.
(i) Examples. The following examples illustrate the rules of this
paragraph (c)(3). Unless otherwise indicated, each example assumes that
other requirements for claiming the deduction under section 224 are
satisfied.
(ii) 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.
(iii) Example 2. The facts are the same as in paragraph (c)(3)(ii)
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)(3)(ii) 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.
(iv) 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
[[Page 45355]]
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.
(v) 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.
(vi) Example 5. The facts are the same as in paragraph (c)(3)(v) of
this section (Example 4), but the 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 D was not expressly provided an
option to disregard or modify the amounts presented. Customer D 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.
(vii) Example 6. The facts are the same as in paragraph (c)(3)(vi)
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.
(viii) 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.
(ix) 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.
(x) Example 9. 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.
(4) Special rules regarding a specified service trade or business.
An amount received by an individual in the course of a specified
service trade or business (as defined in section 199A(d)(2) of the
Code) is not a qualified tip. If the individual performs services as an
employee, the relevant trade or business is the trade or business of
the employer in the course of which the employee is performing
services. Thus, an amount received by an employee performing services
for the employee's employer in the course of a specified service trade
or business operated by the employee's employer is not a qualified tip,
regardless of whether the trade or business or an owner of the trade or
business is eligible for a deduction under section 199A, and regardless
of whether the employee is performing services in an occupation listed
in paragraph (f) of this section or whether that occupation is a
specified service trade or business.
(i) Examples. The following examples illustrate the rules of this
paragraph (c)(4). Unless otherwise indicated, each example assumes that
other requirements for claiming the deduction under section 224 are
satisfied.
(ii) Example 1. Self-employed Comedian C performs a stand-up comedy
routine at Performance Venue V. The audience members at Performance
Venue V give Comedian C cash tips after the performance. The cash tips
received by Comedian C are not qualified tips because the tips are
received in the course of Comedian C's trade or business in the
performing arts, which is a specified service trade or business. Such
cash tips are not qualified tips notwithstanding the fact that Comedian
C's occupation (comedian) is included in the Treasury Tipped Occupation
Code (TTOC) category of ``Entertainers and performers,'' on the list of
occupations that customarily and regularly received tips on or before
December 31, 2024, as provided in paragraph (f) of this section.
(iii) Example 2. Pianist P is an employee of Hotel H. Hotel H does
not operate a trade or business that is a specified service trade or
business. Pianist P plays the piano in the lobby of Hotel H. Hotel H's
patrons often leave cash tips in a jar on the piano for Pianist P. The
cash tips received by Pianist P
[[Page 45356]]
are qualified tips, even though the tips are received for services in
the performing arts, which is a specified service trade or business,
because Pianist P is performing services as an employee, the employer
(Hotel H) is not operating a specified service trade or business, and
Pianist P's occupation (piano player) is included in the TTOC category
of ``Musicians and singers,'' on the list of occupations that
customarily and regularly received tips on or before December 31, 2024,
as provided in paragraph (f) of this section.
(iv) Example 3. Bartender B is an employee of Company R. Company R
does not operate a trade or business that is a specified service trade
or business. Theater T enters into a contract with Company R to provide
bartending services during the intermission of certain live
performances occurring at Theater T. During the intermissions,
Bartender B receives cash tips from patrons at Theater T. The cash tips
are qualified tips because Bartender B is performing services as an
employee, the employer (Company R) is not engaged in a specified
service trade or business, and the employee's occupation (bartender) is
included in the TTOC category of ``Bartenders'' on the list of
occupations that customarily and regularly received tips on or before
December 31, 2024, as provided in paragraph (f) of this section.
(5) 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.
(6) 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.
(7) Prostitution. Any amount received for prostitution services is
not a qualified tip.
(8) Pornography. Any amount received for pornographic activity is
not a qualified tip.
(9) No ownership in or employment by payor. A tip received by an
employee or other service provider who has an ownership interest in or
is employed by the payor of the tip is not a qualified tip.
(d) 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 (d)(1) of this section.
(3) 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.
(4) Example 2. 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 $75,000 that consists of $55,000 of fees for
services at the nail salon and $20,000 of qualified tips. Manicurist
M's total deductible expenses (other than the deduction for qualified
tips) are $60,000. Manicurists M'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 M
received $20,000 in qualified tips, Manicurist M is allowed a qualified
tip deduction of only $15,000, which is the extent to which Manicurist
M'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.
(e) 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.
(2) Married taxpayers. Taxpayers who are married, as defined by
section 7703 of the Code, 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. In accordance
with section 224(b)(1), the total amount of qualified tips that can be
deducted per calendar year is $25,000 regardless of filing status.
After applying the $25,000 limitation, the deduction amount is further
subject to the phase-out based on the taxpayers' modified adjusted
gross income described in section 224(b)(2).
(3) Example. Taxpayers J and K are married, as defined in section
7703, 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. J receives $15,000 in qualified tips in 2025, and K
receives $20,000 in qualified tips in 2025. The maximum deduction J and
K may claim pursuant to section 224 on their joint return for 2025 is
$25,000.
[[Page 45357]]
(f) Occupations that customarily and regularly received tips on or
before December 31, 2024--(1) In general. The occupations in Table 1
customarily and regularly received tips on or before December 31, 2024.
Subject to the requirements in section 224 and this section, only
qualified tips received in connection with the occupations listed in
Table 1 are eligible for the deduction in section 224(a).
(2) Specified service trade or business exclusion. An individual
working in an occupation listed in Table 1 is not eligible for the
deduction in section 224(a) with respect to any amounts received in the
course of a trade or business that is a specified service trade or
business. An individual engaged in the trade or business of being an
employee is not eligible for the deduction in section 224(a) with
respect to any amounts received for providing services for an employer
in the course of a trade or business of the employer that is a
specified service trade or business.
Table 1 to Paragraph (f)(1)--Occupations That Customarily and Regularly Received Tips on or Before December 31,
2024
----------------------------------------------------------------------------------------------------------------
Treasury Tipped Related Standard Occupational
Occupation Code TTOC occupation TTOC occupation TTOC illustrative Classification (SOC) system
(TTOC) title description examples code(s) \1\
----------------------------------------------------------------------------------------------------------------
Beverage and Food Service
----------------------------------------------------------------------------------------------------------------
101.............. Bartenders......... Mix and serve Barkeep, 35-3011.
drinks to patrons, mixologist,
directly or taproom attendant,
through waitstaff. sommelier.
102.............. Wait Staff......... Take orders and Cocktail waitress, 35-3031.
serve food and dining car server.
beverages to
patrons at tables
in dining
establishment.
103.............. Food Servers, Non- Serve food to Room service food 35-3041.
restaurant. individuals server, boat hop,
outside of a beer cart server.
restaurant
environment, such
as in hotel rooms,
residential care
facilities, or
cars.
104.............. Dining Room and Facilitate food Bar back, bar 35-9011.
Cafeteria service. Clean helper, busser.
Attendants and tables; remove
Bartender Helpers. 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.
105.............. Chefs and Cooks.... Direct and may Executive chef, 35-1011, 35-2011,
participate in the pastry chef, sous 35-2013, 35-2014,
preparation, chef, fast food 35-2019.
seasoning, and cook, private
cooking of salads, chef, restaurant
soups, fish, cook, saucier,
meats, vegetables, food truck cook,
desserts, or other banquet cook,
foods. caterer,
chocolatier,
confectioner.
106.............. Food Preparation Perform a variety Salad maker, 35-1012, 35-2021,
Workers. of food sandwich maker, 35-9099.
preparation duties fruit and
other than vegetable parer,
cooking, such as kitchen steward.
preparing cold
foods and
shellfish, slicing
meat, and brewing
coffee or tea.
107.............. Fast Food and Serve customers at Barista, ice cream 35-3023.
Counter Workers. counter or from a server, cafeteria
steam table. server.
Perform duties
such as taking
orders and serving
food and
beverages. May
take payment. May
prepare food and
beverages.
108.............. Dishwashers........ Clean dishes, Dish room worker, 35-9021.
kitchen, food silverware cleaner.
preparation
equipment, or
utensils.
109.............. Host Staff, Welcome patrons, Ma[icirc]tre 35-9031.
Restaurant, seat them at d'h[ocirc]tel,
Lounge, and Coffee tables or in dining room host.
Shop. lounge, and help
ensure quality of
facilities and
service.
110.............. Bakers............. Mix and bake Bread baker, cake 51-3011.
ingredients to baker, bagel
produce breads, baker, pastry
rolls, cookies, finisher.
cakes, pies,
pastries, or other
baked goods.
----------------------------------------------------------------------------------------------------------------
Entertainment and Events
----------------------------------------------------------------------------------------------------------------
201.............. Gambling Dealers... Operate gambling Blackjack dealer, 39-3011, 39-1013,
games. Stand or craps dealer, 39-3013.
sit behind table poker dealer,
and operate games roulette dealer,
of chance by pit clerk.
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.
202.............. Gambling Change Exchange coins, Slot attendant, 41-2012.
Persons and Booth tokens, and chips mutuel teller.
Cashiers. 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.
203.............. Gambling Cage In a gambling Casino cashier, 43-3041.
Workers. establishment, cage cashier.
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.
[[Page 45358]]
204.............. Gambling and Sports Post information Betting runner, 39-3012.
Book Writers and enabling patrons bingo worker, keno
Runners. to wager on runner, race book
various races and writer.
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.
205.............. Dancers............ Perform dances..... Club dancer, dance 27-2031.
artist.
206.............. Musicians and Play one or more Instrumentalist, 27-2042.
Singers. musical accompanist,
instruments or lounge singer.
sing.
207.............. Disc Jockeys, Play prerecorded Deejay, club DJ.... 27-2091.
Except Radio. 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).
208.............. Entertainers and Entertain audiences Comedian, clown, 27-2099.
Performers. with artistic magician, street
expression. performer.
209.............. Digital Content Produce and publish Streamer, online 27-2099.
Creators. on digital video creator,
platforms original social media
entertainment and influencer,
personality-driven podcaster.
content, such as
live streams,
short-form videos,
or podcasts.
210.............. Ushers, Lobby Assist patrons at Ticket collector, 39-3031.
Attendants, and entertainment theater usher.
Ticket Takers. 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.
211.............. Locker Room, Provide personal Coat checker, 39-3093.
Coatroom, and items to patrons washroom
Dressing Room or customers in attendant,
Attendants. locker rooms, bathhouse
dressing rooms, or attendant.
coatrooms.
----------------------------------------------------------------------------------------------------------------
Hospitality and Guest Services
----------------------------------------------------------------------------------------------------------------
301.............. Baggage Porters and Handle baggage for Hotel baggage 39-6011.
Bellhops. travelers at handler, curbside
transportation airport check-in
terminals or for assistant.
guests at hotels
or similar
establishments.
302.............. Concierges......... Assist patrons at Hotel guest service 39-6012.
hotels or agent, activities
apartment concierge.
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.
303.............. Hotel, Motel, and Accommodate hotel, Front desk clerk, 43-4081.
Resort Desk Clerks. motel, and resort registration clerk.
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.
304.............. Maids and Perform any Hotel maid, 37-2012.
Housekeeping combination of housekeeping staff.
Cleaners. 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.
----------------------------------------------------------------------------------------------------------------
Home Services
----------------------------------------------------------------------------------------------------------------
401.............. Home Maintenance Perform work to Handyman, roofer, 49-9071, 49-9098,
and Repair Workers. keep machines, window repairer, 49-9099, 49-9063,
mechanical house painter 49-2097, 51-7021.
equipment, or the (interior or
structure of a exterior),
building in flooring
repair. May installer, piano
maintain and tuner, furniture
repair musical restorer, antique
instruments, repairer.
furniture,
antiques, and non-
fixtures.
402.............. Home Landscaping Landscape or Lawn mower, 37-3011.
and Groundskeeping maintain grounds gardener, tree
Workers. of property using trimmer, weed
hand or power sprayer.
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.
403.............. Home Electricians.. Install, maintain, Electrician........ 47-2111.
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.
404.............. Home Plumbers...... Assemble, install, Plumber, 47-2152.
alter, and repair pipefitter,
pipelines or pipe steamfitter,
systems that carry sprinkler
water, steam, air, installer.
or other liquids
or gases. May
install heating
and cooling
equipment and
mechanical control
systems.
[[Page 45359]]
405.............. Home Heating and Install or repair Air conditioning 49-9021.
Air Conditioning heating, central repairer, heating
Mechanics and air conditioning, system installer,
Installers. HVAC, or chimney sweep.
refrigeration
systems, including
oil burners, hot-
air furnaces, and
heating stoves.
406.............. Home Appliance Repair, adjust, or Washing machine 49-9031.
Installers and install all types installer,
Repairers. of electric or gas dishwasher
household repairer.
appliances, such
as refrigerators,
washers, dryers,
and ovens.
407.............. Home Cleaning Perform any House cleaner, pool 37-2012
Service Workers. combination of cleaner, carpet
light cleaning cleaner, window
duties to maintain washer.
private households
in a clean and
orderly manner.
Duties may include
making beds,
replenishing
linens, cleaning
rooms and halls,
and vacuuming.
408.............. Locksmiths......... Repair and open Safe installer, key 49-9094.
locks, make keys, maker.
change locks and
safe combinations,
and install and
repair safes.
409.............. Roadside Assistance Provide on-road Tow truck driver, 49-3023, 53-3032.
Workers. assistance to car battery
drivers whose technician, tire
vehicles have repairer, tire
broken down. changer, car fuel
deliverer.
----------------------------------------------------------------------------------------------------------------
Personal Services
----------------------------------------------------------------------------------------------------------------
501.............. Personal Care and Provide Elderly companion, 31-1122, 39-9099.
Service Workers. personalized personal care
assistance to aide, butler,
individuals with house sitter,
disabilities or personal valet.
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, or
at a daytime
nonresidential
facility.
502.............. Private Event Coordinate Wedding planner, 13-1121, 27-1023.
Planners. activities of party planner,
staff or clients event florist.
to make
arrangements for
private events.
May provide
creative design
for d[eacute]cor,
floral
arrangements, and
invitations.
503.............. Private Event and Photograph people, Wedding 27-4021.
Portrait landscapes, or photographer,
Photographers. other subjects. headshot
May use lighting photographer.
equipment to
enhance a
subject's
appearance. May
use editing
software to
produce finished
images and prints.
504.............. Private Event Operate video or Wedding 27-4031.
Videographers. film camera to videographer.
record images or
scenes of private
events.
505.............. Event Officiants... Lead and facilitate Wedding officiant, 21-2010.
the ceremony for funeral celebrant,
life events such clergy, vow
as weddings or renewal officiant.
funerals.
Ceremonies may be
religious or civil
services.
506.............. Pet Caretakers..... Feed, water, groom, Pet groomer, pet 39-2021.
bathe, exercise, sitter, pet
or otherwise walker, kennel
provide care to worker, pet
promote and trainer.
maintain the well-
being of pets.
507.............. Tutors............. Instruct individual Reading tutor, math 25-3041.
students or small tutor, language
groups of students tutor.
in academic
subjects to
supplement formal
class instruction
or to prepare
students for
standardized or
admissions tests.
May provide
instruction in
person or remotely.
508.............. Nannies and Attend to children Au pair, child 39-9011.
Babysitters. at businesses and sitter at hotels
private and gyms.
households.
Perform a variety
of tasks, such as
dressing, feeding,
bathing, and
overseeing play.
----------------------------------------------------------------------------------------------------------------
Personal Appearance and Wellness
----------------------------------------------------------------------------------------------------------------
601.............. Skincare Provide skincare Facialist, 39-5094.
Specialists. treatments to face electrologist, spa
and body to esthetician.
enhance an
individual's
appearance.
602.............. Massage Therapists. Perform therapeutic Masseuse, deep 31-9011.
massages of soft tissue massage
tissues and therapist, sports
joints. May assist massage therapist.
in the assessment
of range of motion
and muscle
strength or
propose client
therapy plans.
603.............. Barbers, Provide beauty or Wig stylist, 39-5012, 39-5011.
Hairdressers, barbering beautician, hair
Hairstylists, and services, such as colorist, hair
Cosmetologists. cutting, coloring, cutter.
and styling hair,
massaging and
treating scalps,
trimming beards or
giving shaves.
604.............. Shampooers......... Shampoo and rinse Scalp treatment 39-5093.
customers' hair. specialist,
shampoo assistant.
605.............. Manicurists and Clean and shape Nail technician, 39-5092.
Pedicurists. customers' fingernail
fingernails and sculptor, nail
toenails. May painter.
polish or decorate
nails.
606.............. Eyebrow Threading Enhance and Eyebrow waxer...... 39-5091.
and Waxing maintain clients'
Technicians. eyebrows using
techniques such as
threading, waxing,
or tweezing.
607.............. Makeup Artists..... Design and apply Wedding makeup 39-9031.
makeup looks. artist, party
makeup artist.
608.............. Exercise Trainers Instruct or coach Aerobics trainer, 27-1019.
and Group Fitness groups or yoga instructor,
Instructors. individuals in personal trainer.
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.
[[Page 45360]]
609.............. Tattoo Artists and Design and execute Tattoo artist, ear 51-6052.
Piercers. tattoos on a piercer, nose
client's skin, piercer.
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.
610.............. Tailors............ Design, make, Tailor, seamstress, 51-6041.
alter, repair, or clothing
fit garments. alterations worker.
611.............. Shoe and Leather Construct, Cobbler, shoe 39-5012.
Workers and decorate, or shiner.
Repairers. repair leather and
leather-like
products, such as
luggage, shoes,
and saddles. May
use hand tools.
----------------------------------------------------------------------------------------------------------------
Recreation and Instruction
----------------------------------------------------------------------------------------------------------------
701.............. Golf Caddies....... Assist a golfer Golf caddie, golf 39-3091.
during a round of cart attendant.
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.
702.............. Self-Enrichment Teach or instruct Knitting 25-3021.
Teachers. individuals or instructor, piano
groups for the teacher, art
primary purpose of instructor, dance
self-enrichment, teacher.
rather than for an
occupational
objective,
educational
attainment,
competition, or
fitness.
703.............. Recreational and Pilot and navigate Helicopter tour 25-3021.
Tour Pilots. the flight of pilot, hot air
fixed-wing balloon aeronaut,
aircraft, skydiving pilot.
helicopters, or
other airborne
vehicle for
recreational or
touring purposes.
Excludes regional
national, and
international
airline pilots,
and emergency
services pilots.
704.............. Tour Guides........ Guide individuals Museum guide, 39-7011.
or groups on sightseeing guide.
sightseeing tours
or through places
of interest, such
as industrial
establishments,
public buildings,
and art galleries.
705.............. Travel Guides...... Plan, organize, and Cruise director, 39-7012.
conduct long- river expedition
distance travel, guide.
tours, and
expeditions for
individuals and
groups.
706.............. Sports and Teach or instruct Diving instructor, 53-2012.
Recreation individuals or ski instructor,
Instructors. groups for the tennis teacher,
primary purpose of surfing instructor.
recreation, rather
than for an
occupational
objective,
educational
attainment,
competition, or
fitness.
----------------------------------------------------------------------------------------------------------------
Transportation and Delivery
----------------------------------------------------------------------------------------------------------------
801.............. Parking and Valet Park vehicles or Parking garage 53-6021.
Attendants. issue tickets for attendant, valet
customers in a parker.
parking lot or
garage. May park
or tend vehicles
in environments
such as a hotel or
restaurant. May
collect fee.
802.............. Taxi and Rideshare Drive a motor Cab driver, 53-3054.
Drivers and vehicle to personal driver.
Chauffeurs. transport
passengers on a
planned or
unplanned basis.
803.............. Shuttle Drivers.... Drive a motor Airport shuttle 53-3053.
vehicle to driver, hotel
transport shuttle driver,
passengers on a rental car shuttle
planned route and driver.
scheduled basis.
May collect a
fare. Excludes
taxi and rideshare
drivers,
chauffeurs,
municipal bus
drivers, and
school bus drivers.
804.............. Goods Delivery Drive truck or Pizza delivery 53-3031.
People. other vehicle over driver, grocery
established routes delivery driver,
or within an floral delivery,
established bicycle courier,
territory to package delivery
deliver goods, person, appliance
such as food delivery driver,
products, furniture delivery
appliances, or person.
furniture, or pick
up or deliver
packages. May also
take orders or
collect payment at
point of delivery.
805.............. Personal Vehicle Wash or otherwise Car wash attendant, 53-7061.
and Equipment clean personal auto detailer,
Cleaners. vehicles, boat waxer.
machinery, and
other equipment.
Use such materials
as water, cleaning
agents, brushes,
cloths, and hoses.
806.............. Private and Charter Drive bus or motor Motor coach bus 53-3052.
Bus Drivers. coach for charters driver, tour bus
or private driver.
carriage. May
assist passengers
with baggage.
807.............. Water Taxi Operate water taxi Water taxi captain, 53-5022.
Operators and boats or provide air boat operator,
Charter Boat services to charter boat
Workers. passengers on deckhand, charter
private charter boat steward.
boats. May assist
in navigational
activities.
808.............. Rickshaw, Pedicab, Operate rickshaw, Horse drawn 53-6099.
and Carriage pedicab, or carriage driver,
Drivers. carriage to bike taxi driver.
transport
passengers.
809.............. Home Movers........ Manually move Furniture mover, 53-7062.
furniture, music packer, piano
instruments, art, mover, art mover.
antiques, boxes,
luggage, or other
materials to or
from a home or
dwelling.
----------------------------------------------------------------------------------------------------------------
\1\ ``Related Standard Occupational Classification (SOC) System Code(s)'' are the code(s) 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).
[[Page 45361]]
(g) Termination. No deduction shall be allowed under this section
for any taxable year beginning after December 31, 2028.
(h) Applicability date. This section applies to taxable years
beginning after December 31, 2024.
Edward T. Killen,
Acting Chief Tax Compliance Officer.
[FR Doc. 2025-18278 Filed 9-19-25; 8:45 am]
BILLING CODE 4830-01-P
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</html>Indexed from Federal Register on September 22, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.