In brief
The Treasury Department is moving closer to a significant change for tipped workers in the U.S. by proposing new regulations that detail eligibility for the 'no tax on tips' provision established under Trump’s tax law. While aimed at benefiting approximately 4 million workers in traditional tipped occupations, the new guidelines limit who qualifies, emphasizing voluntary tips and excluding those involved in illegal activities. The provision is set to retroactively apply starting January 1, 2025.
WASHINGTON (AP) — The Treasury Department is closer to making President Donald Trump’s promise of 'no tax on tips' a reality. However, the new guidance released Friday limits the number of tipped workers eligible for this benefit.
The agency submitted proposed regulations to the Federal Register that provide more details about which occupations will be covered and who qualifies for the tax exemption.
This provision, established in the massive tax and spending law signed by Trump, eliminates federal income taxes on tips for employees in traditionally tipped roles and permits certain workers to deduct up to $25,000 in 'qualified tips' from their income from 2025 through 2028. The deduction will phase out for taxpayers with a modified adjusted gross income exceeding $150,000.
To qualify as a tip, the gratuities must be earned in one of the specified occupations on Treasury’s list of qualified occupations. Among those exempt from tax on tips are sommeliers, cocktail waiters, DJs, podcasters, personal care aides, and more.
The new guidance also stipulates that to be considered a tip, the payment must be voluntarily given, excluding mandatory tips or auto-gratuities but permitting tip pools.
The sum must be in cash, check, debit card, or gift card form—digital assets are not considered valid.
The 'no tax on tips' provision retroactively applies from January 1, 2025, potentially benefiting around 4 million workers in tipped occupations. However, Congressional budget analysts predict the provision could add to the deficit with an estimated $40 billion in costs through 2028.
Only tips reported to an employer and included on a worker’s W-2 form will qualify for the tax benefit.
