The U.S. Treasury Department and the IRS have issued official guidance on the “No Tax on Tips” policy, allowing eligible workers to deduct up to $25,000 in tip income from their taxable income starting with the 2025 tax year. This provision is part of the One Big Beautiful Bill Act (OBBBA) and is effective through 2028.

The guidance clarifies which occupations and types of tips qualify for the deduction, helping workers understand exactly what counts. Eligible tips must be voluntary and received in cash, check, debit card, gift card, or other items exchangeable for cash. Mandatory service charges and most digital assets are excluded, ensuring the benefit targets true gratuities from customers.

Under the new regulations, digital tokens can be classified as tips if they meet certain criteria. Qualified tips must be paid in cash or an equivalent medium, which includes tangible or intangible tokens that are readily exchangeable for a fixed amount in cash. This means that some digital tokens that can be easily converted to cash or cash equivalents qualify as tips for the no-tax-on-tips deduction.

For example, tokens used on streaming platforms or casino chips that are exchangeable for cash are recognized as qualified tips under the new guidance. However, most digital assets that are not convertible to a fixed cash amount do not qualify as tips. The tokens must also be voluntarily given by customers and not part of mandatory service charges or automatic gratuities.

Thus, digital tokens are treated similarly to gift cards or other cash-equivalent tokens, provided they have a fixed cash redemption value and meet the voluntary payment condition.

The IRS also sets income limits for the deduction. Single filers with a modified adjusted gross income (MAGI) over $150,000 and joint filers over $300,000 will see the deduction phase out, disappearing entirely at $400,000 for singles and $550,000 for joint filers. This ensures the benefit is focused on workers who rely most on tips for their income.In total, workers in nearly 70 occupations are eligible for this deduction.

What occupations qualify for the “no tax on tips” deduction

The “no tax on tips” deduction applies to occupations that customarily and regularly receive tips, with a preliminary list from the Treasury Department identifying 68 qualifying jobs. These occupations span several categories:

• Beverage & Food Service: bartenders (mixologists, sommeliers), wait staff (cocktail servers, dining car attendants), non-restaurant food servers (room service staff, beer cart attendants), dining room and cafeteria attendants (bussers, barbacks), chefs and cooks (executive chefs, sous chefs, fast food cooks), food preparation workers (sandwich makers, salad makers), dishwashers, host staff, bakers.
• Entertainment & Events: gambling dealers, change attendants, cage workers, dancers, musicians, vocalists, disc jockeys (excluding radio DJs), performers, digital content creators like streamers and podcasters.
• Hospitality & Guest Services: baggage porters, bellhops, concierges, hotel desk clerks, maids/housekeeping cleaners.
• Home Services: roofers, electricians, plumbers, painters.
• Personal Services: personal aides, companions, tutors, nannies.
• Recreation & Instruction: instructors for activities like skydiving or skiing.
• Transportation & Delivery: taxi drivers, valets, shuttle drivers, water taxi operators.

The deduction excludes specified service trades or businesses (SSTBs) such as healthcare, legal, performing arts, and some personal reputation-based occupations.

This deduction, part of the One Big Beautiful Bill enacted in 2025, allows qualifying workers to exclude up to $25,000 of tips from taxable income, phasing out at higher income levels. It aims to support millions of tipped workers across a wide range of roles.

To benefit from the “No Tax on Tips” provision, individuals must meet the following requirements:

• Occupation: The IRS has released a preliminary list of 68 occupations that customarily and regularly receive tips. These include roles in beverage and food service, entertainment and events, hospitality and guest services, personal services, recreation and instruction, and transportation and delivery. Examples encompass servers, bartenders, massage therapists, delivery drivers, and influencers.
• Tip Nature: Only voluntary tips qualify. Mandatory service charges, such as auto-gratuities, do not count. Eligible tips must be received in cash, check, debit card, gift card, or other items exchangeable for a fixed amount of cash. Digital assets are excluded.
• Income Limits: The deduction phases out for single filers with a modified adjusted gross income (MAGI) over $150,000, and for joint filers over $300,000. It becomes unavailable at $400,000 for single filers and $550,000 for joint filers.
• Tax Filing Status: Married individuals must file jointly to claim the deduction.
• Reporting: Tips must be reported on Form W-2, Form 1099, or Form 4137. Self-employed individuals must report tips directly.

Who Is Excluded from the Deduction?

Certain individuals and situations are ineligible for the “No Tax on Tips” deduction:

• Specified Service Trades or Businesses (SSTBs): Self-employed individuals or employees working in SSTBs, as defined under Section 199A, are excluded. This includes professions like law, accounting, and consulting.
• Mandatory Service Charges: Tips that are automatically added to bills and cannot be adjusted by the customer do not qualify.
• Illegal Activities: Tips received for services related to illegal activities, including prostitution and pornography, are not eligible.
• Digital Assets: Tips paid in digital currencies or assets are excluded from the deduction.
• Tax Filing Status: Individuals who are married but file separately are not eligible for the deduction.

What Are the Implications and Considerations of the Tip Deduction?

While the “No Tax on Tips” provision offers significant tax relief for eligible workers, it’s important to consider the broader context:

• Temporary Benefit: The deduction is set to expire after 2028, making it a short-term relief measure.
• Limited Impact: Fewer than 3% of tax filings are expected to utilize this deduction, indicating its limited reach.
• Criticism of Tipping Culture: Critics argue that the policy may reinforce the reliance on tipping instead of promoting fair wages, potentially discouraging employers from paying a living wage.

As the IRS continues to refine the list of eligible occupations and finalize the implementation details, workers in traditionally tipped roles should stay informed about the evolving regulations to maximize their potential benefits.