Proposed regulations: Occupations that customarily and regularly receive tips and definition of “qualified tips”
For purposes of income tax deduction for qualified tips enacted under OBBBA
The U.S. Treasury Department and IRS today issued proposed regulations (REG-110032-25) that would identify occupations that customarily and regularly received tips on or before December 31, 2024, and provide a definition of “qualified tips” for purposes of the income tax deduction for qualified tips enacted under Pub. L. No. 119-21 (the “One Big Beautiful Bill Act” (OBBBA)).
Background
Section 70201 of the OBBBA provides individuals with an income tax deduction for tax years 2025-2028 equal to the qualified tips received during the year and reported on Form W-2, Form 1099-K or Form 1099-NEC, or reported by the taxpayer on Form 4317. Qualified tips include any cash tip received in a job that traditionally and customarily receives tips as of December 31, 2024. However, qualified tips do not include any amount received by an individual unless the amount:
- Is paid voluntarily without consequence of nonpayment, is not subject to negotiation, and is determined by the payor
- Is not received in the course of a trade or business that is a specified service trade or business as defined in section 199A(d)(2)
The deduction cannot exceed $25,000 and starts to phase out when the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 for joint filers).
Proposed regulations
Consistent with statute, the proposed regulations would define qualified tips as cash tips received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool, that are paid in a cash medium of exchange, including by cash, check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash (such as casino chips), and any other form of electronic settlement or mobile payment application that is denominated in cash. Cash tips would not include items paid in any medium other than cash or charge, such as event tickets, meals, services, or other assets that are not exchangeable for a fixed amount in cash (such as most digital assets).
To prevent reclassification of income as qualified tips, and to prevent abuse of the deduction, the proposed regulations would also provide that a payment is not a qualified tip if the tip recipient has an ownership interest in or is employed by the payor of the tip.
The proposed regulations would provide a list of occupations that customarily and regularly received tips on or before December 31, 2024, organized according to a new categorization system created by the Treasury Department and IRS, with each assigned a three-digit code called a “Treasury Tipped Occupation Code” (TTOC) and grouped together in the following more general occupational categories:
- 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
The list provides the “TTOC Occupation Title” for each occupation code, a short description of the types of services performed by individuals working in an occupation included in this occupation code, illustrative examples of specific occupations that would be included under the occupation code, and the related SOC System Code(s).
The proposed regulations are proposed to apply to tax years beginning on or after December 31, 2024. Taxpayers may rely on the proposed regulations for tax years beginning after December 31, 2024, and on or before the date the regulations are published as final regulations in the Federal Register, provided that taxpayers follow these proposed regulations in their entirety and in a consistent manner.
Comments on the proposed regulations, as well as requests to speak and outlines for topics to be discussed at the public hearing (scheduled for October 23, 2025, at 10:00 AM ET), are due by the date that is 30 days after publication of the proposed regulations in the Federal Register, which is scheduled to be September 22, 2025. If no outlines are received by that date, the public hearing will be cancelled.
Read a related IRS release—IR-2025-92