Ugur Karakoc | E+ | Getty Images
The U.S. Department of the Treasury and IRS on Friday issued proposed regulations with more details about President Donald Trump’s “no tax on tips” deduction.
Enacted via Trump’s “big beautiful bill” in July, the provision allows certain workers to deduct up to $25,000 in “qualified tips” per year from 2025 through 2028. The tax break on tips phases out, or gets smaller, once modified adjusted gross income exceeds $150,000.
Since the measure applies to current-year earnings, it has sparked questions — including which jobs qualify — from tipped workers and tax professionals.
More from Personal Finance:
‘No tax on tips’ offers planning opportunities. But here’s what to know first
Federal Reserve cuts interest rates: Here’s what that means for your money
Attorneys general, advocates oppose Trump’s student Loan forgiveness rule
In 2023, there were roughly 4 million U.S. workers in tipped occupations, representing 2.5% of all employment, according to estimates from The Budget Lab at Yale University.
Here are some key things to know about the new tax break, according to Treasury officials.
Some tipped ‘SSTBs’ won’t qualify
The Treasury in August released a preliminary list of 68 occupations that “customarily and regularly received tips” as of Dec. 31, 2024, as required by Trump’s legislation.
However, certain jobs, known as so-called “specified service trade or businesses,” or SSTBs, don’t qualify, Treasury officials told reporters on Thursday.
SSTBs include categories like health care, legal, financial services, performing arts and more. Trump’s 2017 tax law outlined the list of SSTBs to limit eligibility for a 20% deduction for certain businesses.
‘Automatic gratuity’ is not eligible
Treasury officials also confirmed that automatic gratuity won’t count as a qualified tip because the payment isn’t given to workers voluntarily.
For instance, let’s say you work at a restaurant that requires an 18% fixed gratuity for parties of six or more. Such earnings would not qualify for the tax break.
Treasury officials on a press call Thursday said that the new tax break is complicated and said they will provide further guidance when the regulation is finalized.
Claim up to $25,000 per tax return
The no tax on tips deduction is worth up to $25,000 per return, according to the proposed regulations.
That means married taxpayers filing jointly are limited to up to $25,000 on their joint filing. But the tax break is not available for married couples filing separate tax returns, Treasury officials said during the call on Thursday.
