No Tax On Tips Guidance

The US Treasury Department has released a preliminary list of occupations that are considered “traditionally and customarily tipped” and able to take advantage of the new “no tax on tips” deduction from the “One, Big, Beautiful Bill Act” (OBBBA). A final list will be released by October 2, 2025, but is expected to be “substantially the same.” 

The OBBBA provides a temporary federal income tax deduction for a maximum of $25,000 per year of an eligible worker’s tips.  The deduction applies to tips received via a tip pool. But it applies only to tips that are voluntarily paid by a customer or client; it does not apply to mandatory service charges automatically assessed to a customer’s bill. Finally, the deduction applies only to federal income tax; tips are still subject to Social Security, Medicare, and state/local taxes. 

The preliminary list of occupations contains 68 occupations in 8 industries. If you have questions about the list or the tip deduction, please contact a KZA attorney.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.