Blog

IR-2026-49 released April 10th with the IRS final regulations on the “No Tax on Tips” provision from the One Big Beautiful Bill (OBBA) originally passed in July 2025.  We were in “extension mode” here in our office, but had seen the updates and confirmed they did not affect any of the previously completed and filed 2025 tax returns for our clients.  Of course there are no free rides, but we  saw that some taxpayers did receive some relief from this provision.  Please see our prior blog post and for some light reading, click through to the IRS PDF, or their full web page for more…here’s the gist of the update:

“These regulations define qualified tips, list occupations that receive tips, and the codes used for those occupations.
Qualified tips must meet these requirements:

• Must be received from customers through a mandatory or voluntary tip-sharing arrangement
• Must be paid voluntarily by the customer and not subject to negotiation
• Doesn’t include service charges unless the customer has an option to disregard or modify the service charge”

Curious if YOU may benefit, start by determining if you meet the requirements.  This IRS link is a great summary but remember there is a phase out for taxpayers with modified adjusted gross income over $150,000 for individuals filing as single/$300,000 for joint filers, then read on to see if your occupation fits one of the 8 categories

List of occupations that receive tips

The List of Occupations that Receive Tips is classified by the Treasury Tipped Occupation Code system, comprising a three-digit code and description for each of the occupations listed within the final regulations. As in the proposed regulations, the final regulations group the occupations into eight 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 final regulations expand the list to include visual artists and floral designers in the personal services category and add gas pump attendants in the transportation and delivery category.

Definition of qualified tips

A worker may only claim the deduction for qualified tips. To be a qualified tip, the tip must be received by a worker in an occupation on the List of Occupations that Receive Tips. The final regulations follow the proposed regulations in further clarifying that qualified tips must satisfy certain requirements:

• Qualified tips must be paid in cash or an equivalent medium, such as check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash, or another form of electronic settlement or mobile payment application denominated in cash.
• Qualified tips must be received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool.
• Qualified tips must be paid voluntarily by the customer and not be subject to negotiation. Qualified tips do not include service charges unless the customer has an option to disregard or modify the service charge.  For instance, in the case of a restaurant that imposes an automatic 18% service charge for large parties and distributes that amount to waiters, bussers and kitchen staff, if the charge is added with no option for the customer to disregard or modify it, the amounts distributed to the workers from this service charge are not qualified tips.

Importantly, workers can take the deduction only for qualified tips that are included on Form W-2, Form 1099-NEC, Form 1099-MISC, Form 1099-K, or reported by the worker on Form 4137.  Gig workers and other self-employed individuals can qualify for this deduction if their occupation is on the List of Occupations that Receive Tips and the other statutory and regulatory requirements are met.  The new law limits the deduction for self-employed individuals to the individual’s net income.”

 IRS Resource for More Info: OBBBA Tax Deductions Overview

🧠 Final Thoughts:

Let the Planning Begin…So keep an open mind and the “quick questions” coming; let’s keep the discussions going until we can be sure we have the best answer or solution — not just for your taxes, but for your goals.  Reporting tips just got a whole lot more complicated — for both employees and employers — but it’s also a planning opportunity (yes, really).

👉 Seems like this is another call to action, no more wishful thinking, let’s not say “I wish I had…”,  and as always…

Feel free to search our website for some of our complementary resources or get in touch:  Contact us if you have tax concerns, tax minimization questions or want to discuss the next steps for your business success and financial goals.  Use our search box for those posts specific to tax minimization, business planning, business best practices, casualty losses, etc. and see what “pop’s” up.