In brief
The Treasury Department is closer to implementing the 'no tax on tips' provision as part of a tax law signed by President Trump, though the new guidance is expected to limit the number of qualified tipped workers. Proposed regulations detail the occupations eligible for the benefit, which allows certain employees to potentially deduct up to $25,000 in tips per year from 2025 to 2028. Not all workers in tipped professions will qualify, with regulations specifying requirements for voluntary tips and eligible job categories.
The U.S. Treasury Department is advancing toward actualizing President Trump's pledge for a 'no tax on tips' policy, unveiled recently in a set of proposed regulations. These regulations provide insight into which occupations will qualify for this benefit, outlining a specific list of eligible roles where tips are a customary part of earnings. However, the guidance seems restrictive, likely limiting the extent of beneficiaries among tipped workers.Under the proposed policy, the 'no tax on tips' initiative seeks to eliminate federal income tax on gratuities for workers in occupations that traditionally receive tips and would allow for a deduction of up to $25,000 in 'qualified tips' annually starting in 2025 through to 2028. The program would phase out for taxpayers with incomes surpassing $150,000.In terms of what constitutes a qualified tip, the Treasury has stipulated that tips must be from occupations detailed in their official list. Some roles, such as sommeliers, delivery drivers, and personal care aides are included, while many positions like podcasters, influencers, and DJs are highlighted for potential exclusion from these benefits.For a tip to meet the qualification criteria, it must be voluntarily given, with mandatory tips or auto-gratuities not qualifying under this provision. Nevertheless, pooled tips reported to the IRS can still be eligible. Importantly, individuals who file taxes separately and those receiving tips through cryptocurrencies or for illicit activities will not be considered under the provision.The retroactive application of the 'no tax on tips' rule is poised to commence from January 1, 2025. Proponents of the measure hope it will provide crucial relief to an estimated 4 million individuals working in tipped occupations, representing about 2.5% of the workforce. However, the policy is projected to increase the federal deficit significantly, with estimates suggesting a total cost of approximately $40 billion by 2028.
