The U.S. Department of the Treasury and the IRS have released a preliminary list of 68 occupations eligible for the new federal “no tax on tips” deduction under the One Big Beautiful Bill Act (OBBBA), which applies to qualified tips received during the 2025 through 2028 tax years.
The deduction allows eligible individuals to deduct up to $25,000 in “qualified tips” per year on their federal income tax return, whether or not they itemize deductions.
Eligible Occupations by Category:
The eligible occupations fall into eight main categories:
| Category | Examples of eligible occupations |
|---|---|
| Beverage & food service | Bartenders, wait staff, chefs, and other related positions. |
| Entertainment & events | Gambling dealers, dancers, musicians, and other performers. |
| Hospitality & guest services | Baggage porters, concierges, and hotel staff. |
| Home services | Home repair workers, landscapers, and cleaning services. |
| Personal services | Personal care workers, pet caretakers, and tutors. |
| Personal appearance & wellness | Skincare specialists, massage therapists, and barbers. |
| Recreation & instruction | Golf caddies and various instructors. |
| Transportation & delivery | Taxi or rideshare drivers and goods delivery personnel. |
For a complete and detailed list of all 68 eligible positions, you can consult the official draft guidance provided by the U.S. Department of the Treasury.
Self-Employed Individuals Who Customarily Receive Tips
To claim the new “No Tax on Tips” deduction, self-employed individuals must maintain detailed, contemporaneous records of all qualified tips received and ensure these tips are properly reported to the IRS. The deduction applies to qualified tips received in tax years 2025 through 2028.
Strong recordkeeping is crucial to substantiate your tip deduction in case of an IRS audit.
- Daily Log: Keep a daily or weekly log (tip diary) of all gratuities received, including the date, amount, payor (when known), and method of payment (cash, check, credit card, etc.).
- Supporting Documents: Retain copies of documents that verify your tips, such as customer invoices, credit or debit card charge slips, bank statements showing electronic payments, and point-of-sale reports.
- Voluntary Payments: Ensure records distinguish between genuine, voluntary tips and mandatory service charges, as only voluntary tips qualify for the deduction.
To be eligible for the deduction, tips must be reported to the IRS on specified forms.
- Form 1099: If customers or third-party settlement organizations (like gig economy platforms) provide you with a Form 1099-NEC or Form 1099-K, your tips should be included on those forms.
- Schedule C: All self-employed income, including tips, should be reported as gross receipts on Schedule C (Form 1040).
- Form 4137 (if applicable): If, for some reason, your tips were not included on a Form 1099 or otherwise properly reported, you must use Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to report them and pay the self-employment portion of Social Security and Medicare taxes on those tips.
- Occupational Eligibility: The deduction is only available for occupations on the IRS’s official list of jobs that customarily and regularly received tips before December 31, 2024. Specified service trades or businesses (SSTBs) like law, health, or consulting are excluded.
- Net Income Limit: The tip deduction cannot exceed your net income from the trade or business after deducting all other allowable expenses. It cannot create a business loss.
- Income Phase-Outs: The maximum annual deduction is $25,000 per tax return (regardless of filing status) and begins to phase out for taxpayers with a modified adjusted gross income (AGI) over $150,000 (or $300,000 for married couples filing jointly).
- Taxes Still Apply: The deduction reduces your federal income tax, but self-employed individuals must still pay both the employer and employee portions of Social Security and Medicare taxes (self-employment tax) on all tip income.
Consult the official IRS.gov website for the latest guidance and forms.
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