New Guidance on 'No Tax on Tips' Deduction
On September 19, the U.S. Treasury Department and the Internal Revenue Service (IRS) released detailed guidance on the 'No Tax on Tips' deduction, a key provision of President Donald J. Trump's 'One Big Beautiful Bill Act,' signed into law on July 4, 2025. This measure, effective from 2025 through 2028, allows eligible tipped workers to deduct up to $25,000 of tip income from their federal income taxes. The proposed regulations, submitted to the Federal Register, specify which occupations and types of tips qualify for this significant tax break.
The release of these rules comes after months of anticipation among workers in tipped industries, as well as employers seeking clarity on implementation. According to a statement from Treasury Secretary Scott Bessent, shared via social media, 'An essential part of POTUS's One, Big, Beautiful Bill is 'No Tax on Tips' — a new deduction of up to $25,000 for hardworking Americans in tipped industries.' The guidance aims to ensure that workers can keep more of their hard-earned money, whether tips are received in cash or through credit card transactions.
Eligible Occupations and Tip Criteria
The Treasury Department and IRS have outlined a comprehensive list of nearly 70 occupations eligible for the deduction, covering a wide range of industries. These include traditional tipped roles such as bartenders, wait staff, hotel maids, and bellhops, as well as less conventional ones like musicians, singers, and entertainers in certain contexts. Congressman Vern Buchanan praised the IRS for its expansive list, stating in a press release on September 19, 'I applaud the IRS for releasing proposed rules outlining a full list of 68 jobs that qualify for the 'No Tax on Tips' federal income tax deduction.'
However, not all tips or jobs automatically qualify. The regulations detail specific criteria for what constitutes an eligible tip, focusing on direct payments from customers for services rendered. The deduction phases out for individuals with gross incomes exceeding $150,000 or $300,000 for married couples filing jointly, with a reduction of $100 for every $1,000 over these thresholds. This ensures the benefit targets lower- and middle-income workers most reliant on tip income.
Employers and workers alike have been urged to review the proposed rules to understand compliance requirements. The Treasury's guidance emphasizes that the deduction can be claimed even if a worker takes the standard deduction, simplifying the process for many filers. This aspect has been highlighted as a major advantage for tipped employees who may not typically itemize their taxes.
Implications and Next Steps
The rollout of this policy is expected to impact millions of workers across the United States, particularly in sectors like food service, hospitality, and entertainment. The White House has previously offered tools to estimate savings under this provision, projecting significant financial relief for eligible employees through 2028. However, some details remain pending, as the IRS is expected to address potential conflicts in the final list of occupations and provide further clarification on specific scenarios.
As the proposed regulations move through the Federal Register process, public feedback will be critical in shaping the final rules. Treasury officials have indicated a commitment to refining the guidance to address any ambiguities, ensuring that both workers and employers can navigate the new tax landscape effectively. For now, the release of these details marks a significant step toward fulfilling a key campaign promise from President Trump, aimed at supporting America's tipped workforce.