Key takeaways
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The IRS has issued proposed regulations regarding how taxpayers in certain occupations can claim a deduction of $25,000 of qualified tips, as stated in “One Big Beautiful Bill.” The proposed guidance included a list of 70 occupations that “customarily and regularly receive tips” and defined “qualified tips” that eligible taxpayers may claim as a deduction. The Treasury and IRS are requesting comment from the public within 30 days through regulations.gov by October 23, 2025.
Our Tax Practice leaders have analyzed more details on the proposed regulations below.
Eligibility within the Treasury Tipped Occupation Code
The list of 70 occupations was broken into eight categories, included under a three-digit code called the Treasury Tipped Occupation Code. Those categories are as follows:
- 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
In order to claim the deduction, a worker must both be in an occupation on the list and receive qualified tips
Definition of qualified tips
The proposed regulations provide definitions for qualified vs unqualified tips, but do not provide explicit details for the process to claim the deduction. Some clarity on “qualified tips”:
- Qualified tips must be paid in cash or equivalent medium (check, credit card, debit card, gift card, tangible/intangible tokens that can be exchanged for cash) or another form of electronic settlement or mobile application
- Must be paid by customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement
- The tips are not subject to negotiation and do not include some service charges
- Automatic gratuity added to large parties that are included without the option for the customer to disregard or modify it, are NOT qualified tips
Next steps for business owners
Business owners should take the following steps to ensure they have properly implemented the “no tax on tips” provision keeping in mind that the provision is retroactive to the start of 2025.
- Evaluate payroll systems and processes for potential necessary updates. Given the retroactivity of the provision, payroll systems may need to be quickly configured to reflect updated withholding tables or new Forms W-4, Employee’s Withholding Certificate, received to reduce taxable income for tips.
- Review Treasury Tipped Occupation Codes to determine whether employees’ tipped wages will qualify
- Educate employees on these updates
- Consult with a qualified tax professional
The provision does not require system modifications as long as business owners can comply with the law, since the benefit will be claimed by individuals. As the regulations are not yet final, it remains unclear what steps will be necessary to claim the deduction, but employers should begin preparing and seeking guidance from a qualified tax professional to ensure compliance. Fill out the form on this page to contact a member of our Tax Practice.
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Authors
MATTHEW MUNN
Partner, UHY LLP Managing Director, UHY Advisors
Matt Munn has over 30 years of experience in public accounting and is an active member of the Tax Practice and leader of the Retirement Plan and Employee Benefits Services Group. He’s also a leading member of the firm’s National Professional Employer Organizations Practice, National Staffing Practice and National Transaction Services Practice.
LONI WINKLER
Partner, UHY LLP Managing Director, UHY Advisors
Loni Winkler is the leader of the tax practice in the Great Lakes region and has 20 years of experience in public accounting. She has extensive experience in corporate and flow-through entity federal and multi-state taxations, and provides professional attest, tax and business consulting services to privately held businesses. In addition, Loni monitors client tax reporting requirements, tax law changes, application and liabilities and assists business owners, CFOs and controllers in developing and implementing innovative business strategies to minimize risk, maximize profits, preserve wealth, and reduce taxes.