Tax Planning
Mastering the “No Tax on Tips” Deduction: Who Qualifies & How to Claim It
Under the One, Big, Beautiful Bill, thousands of tipped workers may now exclude their tips from taxable income—learn the occupations, rules, and steps to claim this deduction.
By NomadicTax Research Team • 5-8 min read • May 11, 2026
## What is the "No Tax on Tips" provision?
The **One, Big, Beautiful Bill Act** (OBBBA) introduced a powerful benefit for workers who receive tips: the ability to exclude **qualified tips** from taxable income, essentially getting a deduction for those tips. This applies for individual returns beginning in tax year **2025**.
The IRS issued **final regulations** (TD-10044) to identify the occupations that “customarily and regularly received tips” on or before **December 31, 2024**, and to define what counts as **qualified tips**. These regs take effect **June 12, 2026**, but apply for the tax year 2025. ([irs.gov](https://www.irs.gov/irb/2026-18_IRB?utm_source=openai))
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## Who qualifies: occupations & eligibility
### Which occupations are eligible?
A wide variety of occupations are included—among them **bartenders**, **waitstaff**, **hospitality service workers**, **home service workers**, **personal services**, and more. Notably, the final list added **visual artists**, **floral designers**, and **gas pump attendants**. ([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))
### What makes a tip “qualified”?
Qualified tips must meet several tests:
- Be received in an eligible occupation from the published list. ([irs.gov](https://www.irs.gov/irb/2026-18_IRB?utm_source=openai))
- Be **voluntary** and from customers, or part of tip-sharing/pooling arrangements—not service charges unless discretionary. ([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))
- Paid in cash or equivalent medium (credit, check, electronic payment 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))
Additionally, if self-employed, your net income from that trade must cover the deduction, and income thresholds apply (phase-outs above certain MAGI) under standards published in previous IRS guidance. ([irs.gov](https://www.irs.gov/newsroom/what-the-no-tax-on-tips-deduction-means-for-you?utm_source=openai))
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## How to claim it: practical steps
| Step | Action | Notes / Tips |
|---|---|---|
| 1 | Determine if your occupation is listed | See IRS list or use the Treasury Tipped Occupation Code (TTOC) from the published list of occupations. ([irs.gov](https://www.irs.gov/forms-pubs/occupations-that-customarily-and-regularly-received-tips-on-or-before-dec-31-2024?utm_source=openai)) |
| 2 | Gather tip records | Keep records of cash & non-cash tips, pooling, relevant Forms (W-2, 1099-NEC/K/MISC) for tips. |
| 3 | Calculate deduction | Use Schedule 1-A (Form 1040) to claim the deduction. The maximum annual deduction is $25,000. Phase-outs apply for higher incomes. ([irs.gov](https://www.irs.gov/newsroom/what-the-no-tax-on-tips-deduction-means-for-you?utm_source=openai)) |
| 4 | Amend returns if needed | If you already filed for tax year 2025 and qualify, you may file Form 1040-X to amend. ([irs.gov](https://www.irs.gov/forms-pubs/claiming-no-tax-on-tips-deduction-for-occupations-that-customarily-and-regularly-receive-tips-may-require-an-amended-return?utm_source=openai)) |
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## Example scenarios
- **Restaurant Server**: Sara works as a server and earned $22,000 in qualified tips plus wages. She’s listed under occupation code 102 (wait staff). She can exclude up to $22,000 as a qualified tips deduction (subject to income limits).
- **Floral Designer**: John, who designs and arranges floral pieces for events (occupation code in personal services), receives customer tips; added to list. He meets requirements and can deduct those tips when filing for 2025. ([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))
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## Key considerations & pitfalls to avoid
- **Occupation misclassification**: If your job isn’t on the list, you can’t claim deduction—even if you believe you should. New additions help, but verify your TTOC. |
- **Service charges vs tips**: Service charges generally don’t qualify unless discretionary and customer-modifiable. |
- **Recordkeeping** is essential—no credible tip logs? Risk audit adjustments. |
- **Income phase-outs** for high earners. Know your MAGI thresholds. |
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## Bottom line
For many tipped workers, the “No Tax on Tips” deduction can mean a meaningful tax savings. Identify whether your role qualifies, keep good records, claim the deduction properly (or amend), and watch for income thresholds. This change rounds out recent reforms under the OBBBA targeting fairness for service-industry workers.