Tax Planning
Claiming the “No Tax on Tips” Deduction: A Boost for Tipped Workers
New regulations give tipped workers the ability to deduct “qualified tips” from taxable income under the One, Big, Beautiful Bill, including clarifying which occupations qualify and what counts as a tip.
By NomadicTax Research Team • 5-8 min read • May 6, 2026
## What’s Changed for Tipped Workers
Under the One, Big, Beautiful Bill (OBBB), passed July 4, 2025, tipped workers now have a **new deduction** under IRC § 224—“No Tax on Tips.” Final regulations issued April 2026 define eligible occupations and what constitutes a **qualified tip**. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-listing-occupations-where-workers-customarily-and-regularly-receive-tips-under-the-one-big-beautiful-bill?utm_source=openai))
## Eligible Occupations & Definition
- The IRS published a list of **over 70 occupations** where workers “customarily and regularly receive tips,” including bartenders, servers, home service workers, entertainers, gas pump attendants, visual artists, floral designers, etc. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-listing-occupations-where-workers-customarily-and-regularly-receive-tips-under-the-one-big-beautiful-bill?utm_source=openai))
- A “qualified tip” generally means something:
* Paid in cash or a cash‐equivalent — credit card, mobile payment, checks readily converted to cash;
* Earned through tip sharing or pooling;
* Voluntarily given by a customer; excluding service charges unless optional. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-listing-occupations-where-workers-customarily-and-regularly-receive-tips-under-the-one-big-beautiful-bill?utm_source=openai))
## How Much Can Be Deducted
- For tax years **2025 through 2028**, eligible workers can deduct **up to $25,000** in qualified tips per individual return, whether single or married filing jointly. ([irs.gov](https://www.irs.gov/newsroom/the-one-big-beautiful-bill-what-gig-economy-workers-should-know?utm_source=openai))
- Self-employed workers follow special rules: they may deduct tips reported via Forms 1099-MISC, 1099-NEC, or 1099-K, subject to their net income from the business; tips must be reported correctly to qualify. ([irs.gov](https://www.irs.gov/newsroom/the-one-big-beautiful-bill-what-gig-economy-workers-should-know?utm_source=openai))
## Practical Tips for Compliance
- **Track tips carefully**: record source, method, amount, whether shared with pooling.
- **Report tips properly**: via pay slips or third-party forms, depending on employment type. Avoid relying on estimates.
- **Verify occupation status**: check IRS list to ensure your role qualifies if it’s not obviously a “tipped occupation.”
## Example Scenarios
| Scenario | Eligible or not? | Amount Deductible |
|---|---|---|
| Server at restaurant, receiving cash tips and credit card tips totaling $20,000 in 2025 | Eligible occupation | Deduct full $20,000 as qualified tips, under $25,000 cap |
| Freelance musician doing performances, receiving mobile and cash tips | Eligible under entertainment category | Deduct up to $25,000, subject to reporting rules |
| Grocery bagger sometimes gets generous tips, role not on list | Likely **not** eligible—unless added on list | No deduction unless your occupation is listed in IRS regulations |
## Timing & Implementation
- Rules effective when regulations published; final regulation released in **April 2026**. Workers may already start claiming based on those rules. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-listing-occupations-where-workers-customarily-and-regularly-receive-tips-under-the-one-big-beautiful-bill?utm_source=openai))
- These rules apply for income received **after December 31, 2024**, for occupations customarily tipped as of that date. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-final-regulations-listing-occupations-where-workers-customarily-and-regularly-receive-tips-under-the-one-big-beautiful-bill?utm_source=openai))
## Why It Matters
This deduction helps lower taxable income line item for many service workers, gig workers, and restaurant staff. With proper documentation and understanding, individuals can reduce their federal income tax. This change also incentivizes transparent tip reporting and may shift how tipping and tip sharing are handled legally.
---
**Action Items for Workers**:
- Collect tip receipts or statements daily.
- Keep a log if cash tips are significant.
- Use tax software or professionals who know OBBB rules.
**For Employers/Businesses**:
- Make sure your payroll systems recognize the changed regulations.
- Provide employees statements of tip sharing.
- Update your instruction manuals and accounting systems.
With proper preparation, “No Tax on Tips” becomes a powerful benefit—not just a policy note.