On September 22, 2025, the Internal Revenue Service published a Notice of Proposed Rulemaking (NPRM),¹ fleshing out the One Big, Beautiful Bill Act’s “no tax on tips” deduction. Among other things, the NPRM lists the requirements for qualified tips, as well as occupations that may be eligible for the new deduction.

Requirements for Qualified Tips

In order to qualify, a tip must meet five requirements:

1. The payment must be a cash tip;²
2. The payment must be voluntary;
3. The customer must have the unrestricted right to determine the amount;
4. The payment should not be the subject of negotiation or dictated by employer policy; and
5. Generally, the customer has the right to determine who receives the payment.³

Qualified tips include both direct payments and those received through tip-pooling arrangements.⁴

In addition, the employee must work in an occupation that “customarily and regularly” received tips on or before December 31, 2024.⁵ Eligible occupations fall into eight general categories:

• Beverage and Food Service;
• Entertainment and Events;
• Hospitality and Guest Services;
• Home Services;
• Personal Services;
• Personal Appearance and Wellness;
• Recreation and Instruction; and
• Transportation and Delivery

Tips That Do Not Qualify

The proposed regulations also bar many categories of compensation from eligibility, including:

• Service charges and other forms of automatic gratuity;⁶
• Other non-cash payments;⁷
• Tips for most professional services, like consulting and financial advice;⁸ and
• Tips for criminal activity, pornographic activity, and prostitution.⁹

Limits on the Deduction

The deduction is capped at $25,000 in tips per year.¹⁰ It phases out for incomes over $150,000 ($300,000 for joint filers).¹¹ Married taxpayers must file jointly in order to qualify.¹²

Takeaways for Employers

Employers should review and update their tip-pooling and tip-reporting policies to ensure that all eligible tips are properly recognized and recorded for compliance with the new regulations. Eligible tips encompass all cash tips, including payments made by:

• Cash;
• Checks;
• Credit cards;
• Debit cards;
• Gift cards;
• Exchangeable tokens (such as casino chips);
• Any form of digital payment that is denominated in cash; and
• Any other cash medium of exchange.¹³

Employers who utilize service charges and other forms of compensation not eligible for the new deduction should consider the risks and benefits of altering those practices to give employees greater access to the deduction.

Employers should also consult with their payroll teams and third-party payroll processors to be ready for the changes these new regulations will require.  As drafted, the NPRM gives employers no discretion—all eligible tips must be included.  Though tax forms are not changing for Tax Year 2025, the recording requirements will take effect sooner, and the IRS has said to expect revised forms for Tax Year 2026.

Finally, employers should consult with tax counsel to ensure that eligible and non-eligible tips are properly categorized to avoid potential exposure for unpaid taxes.¹⁴ Among other considerations, payroll taxes will still be due on eligible tips.

Cozen O’Connor attorneys are available to discuss this rulemaking and to assist employers in taking appropriate responsive steps.

Full List of Eligible Occupations

The proposed rule also includes a detailed list of eligible occupations, categorized by Treasury Tipped Occupation Code, as follows—

• 100s — Beverage and Food Service
  • ​101 — Bartenders
  • 102 — Wait Staff
  • 103 — Food Servers, Non-restaurant
  • 104 — Dining Room and Cafeteria Attendants and Bartender Helpers
  • 105 — Chefs and Cooks
  • 106 — Food Preparation Workers
  • 107 — Fast Food and Counter Workers
  • 108 — Dishwashers
  • 109 — Host Staff, Restaurant, Lounge, and Coffee Shop
  • 110 — Bakers
• 200s — Entertainment and Events
  • ​201 — Gambling Dealers
  • 202 — Gambling Change Persons and Booth Cashiers
  • 203 — Gambling Cage Workers
  • 204 — Gambling and Sports Book Writers and Runners
  • 205 — Dancers
  • 206 — Musicians and Singers
  • 207 — Disc Jockeys, Except Radio
  • 208 — Entertainers and Performers
  • 209 — Digital Content Creators
  • 210 — Ushers, Lobby Attendants, and Ticket Takers
  • 211 — Locker Room, Coatroom, and Dressing Room Attendants
• 300s — Hospitality and Guest Services
  • ​301 — Baggage Porters and Bellhops
  • 302 — Concierges
  • 303 — Hotel, Motel, and Resort Desk Clerks
  • 304 — Maids and Housekeeping Cleaners
• 400s — Home Services
  • ​401 — Home Maintenance and Repair Workers
  • 402 — Home Landscaping and Groundskeeping Workers
  • 403 — Home Electricians
  • 404 — Home Plumbers
  • 405 — Home Heating and Air Conditioning Mechanics and Installers
  • 406 — Home Appliance Installers and Repairers
  • 407 — Home Cleaning Service Workers
  • 408 — Locksmiths
  • 409 — Roadside Assistance Workers

• 500s — Personal Services
  • ​501 — Personal Care and Service Workers
  • 502 — Private Event Planners
  • 503 — Private Event and Portrait Photographers
  • 504 — Private Event Videographers
  • 505 — Event Officiants
  • 506 — Pet Caretakers
  • 507 — Tutors
  • 508 — Nannies and Babysitters

• 600s — Personal Appearance and Wellness
  • ​601 — Skincare Specialists
  • 602 — Massage Therapists
  • 603 — Barbers, Hairdressers, Hairstylists, and Cosmetologists
  • 604 — Shampooers
  • 605 — Manicurists and Pedicurists
  • 606 — Eyebrow Threading and Waxing Technicians
  • 607 — Makeup Artists
  • 608 — Exercise Trainers and Group Fitness Instructors
  • 609 — Tattoo Artists and Piercers
  • 610 — Tailors
  • 611 — Shoe and Leather Workers and Repairers

• 700s — Recreation and Instruction
  • ​701 — Golf Caddies
  • 702 — Self-Enrichment Teachers
  • 703 — Recreational and Tour Pilots
  • 704 — Tour Guides
  • 705 — Travel Guides
  • 706 — Sports and Recreation Instructors

• 800s — Transportation and Delivery
  • ​801 — Parking and Valet Attendants
  • 802 — Taxi and Rideshare Drivers and Chauffeurs
  • 803 — Shuttle Drivers
  • 804 — Goods Delivery People
  • 805 — Personal Vehicle and Equipment Cleaners
  • 806 — Private and Charter Bus Drivers
  • 807 — Water Taxi Operators and Charter Boat Workers
  • 808 — Rickshaw, Pedicab, and Carriage Drivers
  • 809 — Home Movers