The IRS has finally released detailed guidance on the highly anticipated no tax on tips deduction, and tipped workers across America are eager to understand how this new provision could save them thousands of dollars. On September 19, 2025, the Treasury Department and IRS issued proposed regulations identifying nearly 70 occupations eligible for this significant tax break under the One Big Beautiful Bill Act.
If you work in a job where tips make up a substantial portion of your income, this could mean up to $25,000 in tax savings for 2025—but only if you understand the rules and qualify under the new guidelines.
Understanding the No Tax on Tips Deduction
The no tax on tips provision, effective from 2025 through 2028, allows both employees and self-employed individuals to deduct qualified tips from their taxable income. This is a true deduction available to all taxpayers, whether you itemize your deductions or take the standard deduction.
The maximum deduction is $25,000 per tax return per year, regardless of filing status. This means that even if both spouses in a married couple work in tipped occupations, they can only claim a combined total of $25,000—not $25,000 each. For self-employed individuals, the deduction cannot exceed your net income from the business where the tips were earned.
Which Occupations Qualify for the Tax Deduction?
The IRS has identified 68 specific occupations that customarily and regularly received tips on or before December 31, 2024. The list includes many expected positions, along with some surprising additions:
Food Service Workers:
- Waiters and waitresses
- Bartenders
- Bussers
- Food runners
- Cooks (surprisingly included)
Hospitality and Service:
- Hotel bellhops and concierges
- Valets and parking attendants
- Casino dealers
- Hairstylists and barbers
- Manicurists and estheticians
Transportation:
- Taxi and rideshare drivers
- Delivery drivers
- Water taxi operators
- Tour guides
Other Eligible Occupations:
- Golf caddies
- Coat check attendants
- Musicians performing live
- Electricians (in certain contexts)
The IRS has created a Treasury Tipped Occupation Code system with three-digit codes to help identify qualifying occupations more precisely.
What Counts as "Qualified Tips" Under the Tax Deduction?
Not all tips qualify for this deduction. The IRS defines qualified tips as voluntary payments made by customers in cash, by check, through electronic payments, or even in tokens like casino chips. Tips received through tip-sharing arrangements with coworkers also qualify.
However, there are important exclusions. Tips received for illegal activity, prostitution services, or pornographic activity are explicitly not eligible for the deduction. This means that while digital content creators generally qualify, those creating adult content on platforms may find their tips ineligible.
Additionally, automatic gratuities added to bills may qualify only if customers can clearly opt out or modify the amount. The IRS will likely provide additional guidance on this gray area.
Income Limits and Tax Deduction Phase-Outs
The no tax on tips deduction begins to phase out for higher earners. If your modified adjusted gross income exceeds $150,000 ($300,000 for joint filers), you'll receive a reduced deduction. Once your income surpasses certain thresholds, the deduction phases out completely.
To claim this deduction, you must include your Social Security number on your tax return, and if you're married, you must file jointly to be eligible.
The SSTB Restriction: A Critical Limitation
One of the most complex aspects of the no tax on tips guidance involves Specified Service Trade or Business (SSTB) restrictions. If you're self-employed in an SSTB—such as entertainment, performing arts, consulting, or certain professional services—your tips don't qualify for the deduction.
Similarly, if you work as an employee for a company that operates as an SSTB, your tips are also ineligible. For example, a self-employed comedian who receives tips after performances cannot claim the deduction because comedy falls under SSTB. However, a bartender working at a theater (through a non-SSTB bartending company) can claim the deduction because their employer is not an SSTB.
This restriction may create confusion, and the IRS is expected to provide additional examples and clarification.
How to Claim Your Tax Deduction
When you file your 2025 tax return in early 2026, you'll be able to claim this deduction. Your employer should provide documentation showing the tips you received and your occupation. Self-employed individuals will need to report tips directly on Form 4137.
The IRS has announced transition relief for tax year 2025, meaning there may be some flexibility as both taxpayers and employers adjust to the new reporting requirements.
If you want to adjust your withholding to account for this deduction now, you can submit a new 2025 Form W-4 to your employer using the IRS deductions worksheet.
Don't Let Tax Problems Cost You This Valuable Deduction
While the no tax on tips deduction offers significant savings, navigating the complex rules around SSTB restrictions, income phase-outs, and qualified tips can be challenging. Making mistakes on your tax return—or worse, having unfiled returns or existing tax debt—could jeopardize your ability to claim this deduction.
If you have back taxes, IRS liens, or wage garnishments, now is the time to resolve these issues before the 2026 filing season arrives. The tax professionals at Tax Problem Solver have over 41 years of experience helping clients settle tax debt for pennies on the dollar and get back into compliance.
Don't let past tax problems prevent you from taking advantage of this valuable new deduction. Contact Tax Problem Solver today for a free consultation and start your journey toward tax relief.
You can contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific issues and solve them. You can also click here to book a free consultation.
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