Tax Planning
Maximizing Deductions: Understanding the New "Qualified Tips" Regulations under OBBBA
Recent IRS proposed regulations redefine what counts as "qualified tips" under the One, Big, Beautiful Bill Act—offering big deductions for tipped occupations but strict rules on eligibility.
By NomadicTax Research Team • 5-8 min read • November 16, 2025
## What Are Qualified Tips Under OBBBA?
The One, Big, Beautiful Bill Act (OBBBA), enacted July 4, 2025, added **Section 224** to the Internal Revenue Code. It allows individuals in occupations that **customarily and regularly received tips before December 31, 2024** to claim a new deduction for "qualified tips." ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
### Key Elements
- **Occupation list**: IRS will publish a list of occupations that meet the tipping threshold from before the cutoff date. Occupations not on that list are ineligible. ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
- **Definition of qualified tips**: Cash tips or payments via credit/debit gift cards or electronic payments if associated with a qualifying tipped occupation. Tips from self-employment in specified service trade or business (SSTB) may be excluded. ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
- **Phaseout rules**:
- A hard cap of **$25,000 per year** deduction. ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
- Phases out when **modified adjusted gross income (MAGI)** exceeds **$150,000 for individuals**, **$300,000 for joint filers**. ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
- **SSN requirement**: Taxpayers must include SSN on returns to claim deduction. ITIN holders are excluded. Married spouses must file jointly. ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
## What’s New: Proposed Regulations Released
The IRS issued **REG-110032-25**, proposing:
- A list of qualifying occupations for "qualified tips" as required by Section 224(h). ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
- A full definition of what counts as cash tips, including electronic modes. ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
- Clarifications on excluded occupations or services (e.g., prostitution, pornographic services). ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
These proposed regs apply for **taxable years beginning after December 31, 2024**; taxpayers may rely on them for years after that, even before final regulations, if fully followed. ([irs.gov](https://www.irs.gov/irb/2025-42_IRB?utm_source=openai))
## Who’s Impacted—and How Much?
### Example Profiles
- **Alice** works as a server—an occupation likely on the list—and earns $30,000 in qualified tips. Alice’s MAGI is $140,000. She may deduct up to $25,000 in qualified tips and not face phaseout.
- **Bob** works as a self-employed SSTB consultant who occasionally receives tips. Since SSTBs are excluded, Bob cannot use qualified tips deduction.
- **Carol & Dave**, married filing jointly, combined MAGI of $320,000; individual in a tipped occupation. Their qualified tips deduction phases out, dropping to zero as MAGI increases beyond threshold.
## Actionable Advice
1. **Check if your occupation is listed** when IRS publishes the qualifying occupations list. If in borderline or uncertain category, keep thorough documentation—manuals, job descriptions, employer statements.
2. **Record all tip types separately**—cash, electronic, etc. Especially note those from non-SSTB employers.
3. **MAGI management strategies**: Explore adjustments—maxing retirement contributions, HSAs, business deductions—to stay under phaseout thresholds if near.
4. **Filing status**: Married taxpayers must file jointly to claim deduction; SSNs must be used. ITINs are excluded.
5. **Stay updated** as regulations become final—proposed now, not yet irrevocable.
## Takeaway
These new regulations under OBBBA represent a significant opportunity for many in tipped occupations to reduce taxable income—but only if you meet several requirements. Early awareness, accurate record-keeping, and smart planning can make a big difference.