The One Big Beautiful Bill Act (Public Law 119-21) creates a groundbreaking deduction that removes taxes on eligible tip income. Starting in the 2025 income tax year, millions of tipped workers across restaurants, hotels, and service industries can enjoy significant savings. The Internal Revenue Service (IRS) has issued proposed regulations explaining how workers in occupations that customarily received tips before December 31, 2024, can qualify. This article simplifies those official rules using verified information from IRS.gov and Treasury Department publications.
The new deduction for qualified tips under the One Big Beautiful Bill Act offers significant relief for millions of tipped workers. Beginning in the 2025 tax year, employees in service industries who customarily and regularly receive tips may exclude up to $25,000 from federal taxes. The proposed regulations issued by the Internal Revenue Service clarify that cash tips, mobile payment application transfers, and voluntary tip-sharing arrangements are eligible for tax purposes if paid voluntarily. The deduction phases out once a worker’s modified adjusted gross income exceeds the limit set for joint filers under the income tax deduction rules.
The Internal Revenue Service released an official list of occupations that qualify for the No Tax on Tips deduction. These tipped occupations include workers who customarily and regularly received tips before December 31, 2024, across diverse service industries. The Treasury Department assigned each job a unique three-digit occupation code under the proposed regulations for accurate classification.
Workers in food and beverage service, hospitality, and personal appearance industries are generally eligible for the new tax deduction. The list also covers performing arts, transportation, and home services, where employees regularly receive tips or participate in voluntary tip-sharing arrangements. The IRS guidance ensures that each tip recipient in a qualifying service trade or business understands their eligibility under the income tax deduction rules.
The Internal Revenue Service defines qualified tips as amounts paid voluntarily by customers, excluding mandatory charges on a customer’s bill. These tips may include cash tips, electronic settlement payments, or transfers through a mobile payment application under an approved voluntary tip-sharing arrangement. The proposed regulations clarify that digital assets, casino chips, or tokens used for prostitution services are never eligible. To claim the deduction for qualified tips, workers must report additional qualified tips accurately and maintain verifiable records for the tax year.
Tipped workers should first review the Internal Revenue Service list of occupations that qualify for the No Tax on Tips deduction. They must confirm that their role customarily and regularly received tips before December 31, 2024, under the proposed regulations. Keeping accurate records of all qualified tips ensures eligibility for the new income tax deduction during the 2025 tax year.
Workers should also track every cash tip, mobile payment, or amount from a voluntary tip-sharing arrangement throughout the year. The Treasury Department encourages employees to submit comments on the proposed regulations through Regulations.gov before October 23, 2025. Consulting a tax professional helps verify compliance with IRS guidance and avoid issues with federal taxes when filing a tax return.
The One Big Beautiful Bill Act delivers a historic change in how tipped workers are treated under federal income tax. It formally recognizes occupations that customarily receive tips and supports fair earnings through a new income tax deduction. This tax on tip deductions increases take-home pay and promotes transparency in tip reporting across the service industry. The proposed regulations may establish a national model for future wage-based tax deductions benefiting millions of service employees and joint filers.
Official legislative text and updates for the One Big Beautiful Bill Act (Public Law 119-21) can be found on Congress.gov, including the whole statute, committee actions, and implementation details. The Internal Revenue Service (IRS) provides official taxpayer guidance through IRS.gov, featuring the proposed regulations, a list of occupations that customarily and regularly received tips before December 31, 2024, and instructions for claiming the No Tax on Tips deduction. Additional policy summaries and updates are available through the Federal Register and U.S. Department of the Treasury websites, where readers can review current regulatory notices, comment deadlines, and occupation code classifications.
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