PART 1-INCOME TAXES

(b) Deduction limitations —(1) In general . The amount allowed as a deduction under section 224(a) and paragraph (a) of this section for any taxable year shall not exceed $25,000, regardless of filing status.

(2) Limitation based on adjusted gross income . After the application of the limitation in paragraph (b)(1) of this section, the amount allowable as a deduction under section 224(a) and paragraph (a) of this section shall be further reduced (but not below zero) by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return). For purposes of this paragraph (b)(2), modified adjusted gross income means the adjusted gross income of the taxpayer from the taxable year increased by any amount excluded from gross income under section 911, section 931, or section 933.

(3) Examples . The following examples illustrate the rules of paragraphs (b)(1) and (2) of this section.

(4) Example 1. Employee A satisfies all the requirements under section 224 and Employee A’s filing status for 2025 is single. A received $26,000 in qualified tips in 2025. Since this is greater than the $25,000 limitation in paragraph (b)(1) of this section, the $26,000 qualified tip amount is first reduced from $26,000 to $25,000. A’s modified adjusted gross income for 2025 is $200,000. The qualified tip amount is further reduced (but not below zero) by $100 for each $1,000 by which A’s modified adjusted gross income exceeds $150,000 (the threshold for a single filer). A’s modified adjusted gross income exceeds $150,000 by $50,000. To calculate the deduction, A first divides $50,000 by $1,000 to get 50. Thus, A’s deduction under section 224(b)(2) is further reduced by $5,000 ($100 x 50), from $25,000 to $20,000.

(5) Example 2. Employee K satisfies all the requirements under section 224 and Employee K’s filing status for 2025 is single. K received $10,000 in qualified tips in 2025. Since this amount is less than $25,000, the limitation in paragraph (b)(1) of this section does not apply. K’s modified adjusted gross income for 2025 is $180,000. K’s deduction is reduced (but not below zero) by $100 for each $1,000 by which K’s modified adjusted gross income exceeds $150,000 (the threshold for a single filer). K’s modified adjusted gross income exceeds $150,000 by $30,000. To calculate the deduction, K first divides $30,000 by $1,000 to get 30. Thus, K’s deduction under section 224(b)(2) is reduced by $3,000 ($100 x 30), from $10,000 to $7,000.

(c) Qualified tips defined —(1) In general. Subject to the requirements in paragraph (c)(3) of this section, qualified tips are amounts received as cash tips (as defined in paragraph (c)(2) of this section) by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided in paragraph (f) of this section.

(2) Cash tips defined. For purposes of paragraph (c)(1) of this section, cash tips are tips received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool, that are paid in a cash medium of exchange, including by cash, check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash (such as casino chips), and any other form of electronic settlement or mobile payment application that is denominated in cash. Cash tips do not include items paid in any medium other than cash, such as event tickets, meals, services, or other assets that are not exchangeable for a fixed amount in cash (such as most digital assets). For purposes of this paragraph (c)(2), tips are amounts paid by customers for services that are in excess of the amount agreed to, required, charged, or otherwise reasonably expected to have to be paid for the services in an arm’s-length transaction.

(3) Amounts must be paid voluntarily. Amounts are qualified tips only if they are paid voluntarily and without any consequence in the event of nonpayment, are not the subject of negotiation, and are determined by the payor. Qualified tips must be paid without compulsion. Thus, service charges, automatic gratuities and any other mandatory amounts automatically added to a customer’s bill by the vendor or establishment are not qualified tips, even if the amounts are subsequently distributed to employees. If a customer is expressly provided an option to disregard or modify amounts added to a bill, such amounts are not mandatory amounts.

(i) Examples. The following examples illustrate the rules of this paragraph (c)(3). Unless otherwise indicated, each example assumes that other requirements for claiming the deduction under section 224 are satisfied.

(ii) Example 1. Restaurant W’s menu specifies that an automatic 18% charge will be added to all bills for parties of six or more customers. Customer D’s bill for food and beverages for her party of six includes the 18% charge on the “tip line” and the total bill includes this amount. Restaurant W distributes this amount to the waitstaff and bussers. Customer D did not determine the amount of the additional charge, nor was Customer D expressly provided an option to disregard or modify the amount. Customer D did not make the payment free from compulsion. Under these circumstances, the 18% charge is not a qualified tip for purposes of the deduction under section 224.

(iii) Example 2. The facts are the same as in paragraph (c)(3)(ii) of this section ( Example 1 ) except the bill has a line labeled “additional tip amount.” In this case, Customer D adds on the “additional tip line” an amount equal to 2% of the price for food and beverages. As in paragraph (c)(3)(ii) of this section ( Example 1), the 18% charge is not a qualified tip for the purposes of the deduction under section 224. However, the 2% additional amount is a qualified tip for the purposes of the deduction under section 224, because Customer D voluntarily paid the 2% additional amount without compulsion.

(iv) Example 3. Customer E dines at Restaurant X with a party of eight people. E’s bill for food and beverages for the party of eight includes a “recommended tip” equal to 18% of the price for food and beverages. However, there is a line for the customer to subtract (including to zero) or add to the recommended tip amount before paying the bill. Customer E subtracts 3% from the recommended tip amount resulting in a tip of 15% of the price for food and beverages. Customer E had a right to determine the additional amount, and he was expressly provided the option to disregard or modify the “recommended tip” amount. Under these circumstances, the recommended 18% amount is not a service charge. Rather, the 15% amount that the customer voluntarily paid without compulsion is a qualified tip for purposes of the deduction under section 224.

(v) Example 4 . Customer F has a meal at Restaurant Y. The server presents the bill for the meal to Customer F on an electronic handheld point of sale (POS) device. The POS device includes the charges for each food and beverage item and the applicable tax. The POS device also prompts Customer F to leave a tip and provides the following options for Customer F: 15%, 18%, 20%, other, and no tip. Customer F selects 18% and pays the total balance via credit card through the POS device. Customer F had a right to determine the additional amount, and Customer F was expressly provided the option to leave no tip. Under these circumstances, the 18% amount is a qualified tip.

(vi) Example 5 . The facts are the same as in paragraph (c)(3)(v) of this section ( Example 4 ), but the choices on the POS device are 15%, 18%, and 20%. Customer F must select a “tip amount” before paying the bill. Customer F selects 15% and pays the total balance via credit card through the POS device. Customer F did not voluntarily determine the amount of the additional charge because Customer F was forced to select an amount greater than zero. Customer D was not expressly provided an option to disregard or modify the amounts presented. Customer D did not make the payment free from compulsion. Under these circumstances, the 15% charge is not a qualified tip for purposes of the deduction under section 224.

(vii) Example 6 . The facts are the same as in paragraph (c)(3)(vi) of this section (Example 5), but Customer F selects 18% and pays the total balance via credit card through the POS device. Customer F did not voluntarily determine the lowest required amount (15%) of the additional charge because Customer F was forced to select an amount greater than zero. Customer F was not expressly provided an option to disregard or modify the amounts presented. Customer F did not make the payment of 15% free from compulsion. Under these circumstances, 15% of the charge is not a qualified tip for purposes of the deduction under section 224. However, the 3% additional amount is a qualified tip for the purposes of the deduction under section 224, because Customer F voluntarily, without compulsion, paid the 3% additional amount.

(viii) Example 7. Self-employed painter G is hired by customer Z to paint customer Z’s house. Included in the service contract between painter G and customer Z is a provision adding a 15% service charge to the total cost of the final bill. After the service contract is signed by both painter G and customer Z, painter G completes the painting services. After the painting services are completed, customer Z pays the amount agreed upon in the service contract, including the 15% service charge. In addition, customer Z pays painter G a cash tip amount, not provided for in the service agreement, equal to 10% of the final bill. The 15% service charge is not a qualified tip because it was included in the service contract before the painting services were provided and painter G’s performance of the painting services was conditioned on the agreement to pay the 15% service charge. However, because the 10% cash tip amount was not included in the service agreement, and because customer Z voluntarily paid the 10% cash tip amount without compulsion, the 10% cash tip amount is a qualified tip for purposes of the deduction under section 224.

(ix) Example 8. Shuttle Driver S enters into a contract with Customer Q. Under the terms of the contract, Shuttle Driver S will drive Customer Q to the airport for either $60 (consisting of a $50 charge and a 20% gratuity) or $65 (consisting of just the charge for the service with no gratuity). The contract states that an additional tip based on the service provided is welcome. Customer Q selects the first option and pays Shuttle Driver S $60. After arriving at the airport, Customer Q pays Shuttle Driver S an additional $5. The 20% gratuity is not a qualified tip because it was not paid voluntarily, and not providing the 20% gratuity would have resulted in Customer Q paying a higher amount. However, the additional $5 amount added after the service was completed is made without compulsion and is a qualified tip for purposes of this section.

(x) Example 9 . Landscaper L is self-employed and enters into a contract to install a new patio for Customer O for $5,000. When the services are complete, Customer O pays Landscaper L $5,100, and tells Landscaper L that the additional $100 is a tip for L’s services. Landscaper L records the payment on the business’s books as a charge for $4,500 for installation of the patio and $600 as a tip. The amount of the qualified tip is $100 because this is the amount that was determined by the payor (the customer). The additional $500 is not a qualified tip because it was not paid voluntarily and was not designated by the payor (the customer). Amounts reclassified by the service provider from the agreed contract price are not qualified tips but are instead part of the charge for services. The additional $500 also is not a tip because it is not in excess of the amount that was agreed to be paid for L’s services.

(4) Special rules regarding a specified service trade or business. An amount received by an individual in the course of a specified service trade or business (as defined in section 199A(d)(2) of the Code) is not a qualified tip. If the individual performs services as an employee, the relevant trade or business is the trade or business of the employer in the course of which the employee is performing services. Thus, an amount received by an employee performing services for the employee’s employer in the course of a specified service trade or business operated by the employee’s employer is not a qualified tip, regardless of whether the trade or business or an owner of the trade or business is eligible for a deduction under section 199A, and regardless of whether the employee is performing services in an occupation listed in paragraph (f) of this section or whether that occupation is a specified service trade or business.

(i) Examples. The following examples illustrate the rules of this paragraph (c)(4). Unless otherwise indicated, each example assumes that other requirements for claiming the deduction under section 224 are satisfied.

(ii) Example 1. Self-employed Comedian C performs a stand-up comedy routine at Performance Venue V. The audience members at Performance Venue V give Comedian C cash tips after the performance. The cash tips received by Comedian C are not qualified tips because the tips are received in the course of Comedian C’s trade or business in the performing arts, which is a specified service trade or business. Such cash tips are not qualified tips notwithstanding the fact that Comedian C’s occupation (comedian) is included in the Treasury Tipped Occupation Code (TTOC) category of “Entertainers and performers,” on the list of occupations that customarily and regularly received tips on or before December 31, 2024, as provided in paragraph (f) of this section.

(iii) Example 2. Pianist P is an employee of Hotel H. Hotel H does not operate a trade or business that is a specified service trade or business. Pianist P plays the piano in the lobby of Hotel H. Hotel H’s patrons often leave cash tips in a jar on the piano for Pianist P. The cash tips received by Pianist P are qualified tips, even though the tips are received for services in the performing arts, which is a specified service trade or business, because Pianist P is performing services as an employee, the employer (Hotel H) is not operating a specified service trade or business, and Pianist P’s occupation (piano player) is included in the TTOC category of “Musicians and singers,” on the list of occupations that customarily and regularly received tips on or before December 31, 2024, as provided in paragraph (f) of this section.

(iv) Example 3 . Bartender B is an employee of Company R. Company R does not operate a trade or business that is a specified service trade or business. Theater T enters into a contract with Company R to provide bartending services during the intermission of certain live performances occurring at Theater T. During the intermissions, Bartender B receives cash tips from patrons at Theater T. The cash tips are qualified tips because Bartender B is performing services as an employee, the employer (Company R) is not engaged in a specified service trade or business, and the employee’s occupation (bartender) is included in the TTOC category of “Bartenders” on the list of occupations that customarily and regularly received tips on or before December 31, 2024, as provided in paragraph (f) of this section.

(5) Employees participating in voluntary tip reporting programs with tip rates . Employees who enter into a Tipped Employee Participation Agreement as part of the Tip Reporting Determination Agreement (TRDA) program or a Model Gaming Employee Tip Reporting Agreement as part of the Gaming Industry Tip Compliance Agreement (GITCA) program may determine the amount of qualified tips using the applicable tip rate in their agreement (and amounts reported on Form 4137 (or successor)) in lieu of reporting actual tips received. The use of the TRDA or GITCA program to determine qualified tips for purposes of this section will not affect the tip audit protection otherwise applicable to the employee’s agreement. Employees participating in the TRDA or GITCA program remain subject to all remaining requirements in section 224 and this section regarding eligibility for the deduction.

(6) Illegal activity. Any amount received for a service the performance of which is a felony or misdemeanor under applicable law is not a qualified tip.

(7) Prostitution. Any amount received for prostitution services is not a qualified tip.

(8) Pornography. Any amount received for pornographic activity is not a qualified tip.

(9) No ownership in or employment by payor. A tip received by an employee or other service provider who has an ownership interest in or is employed by the payor of the tip is not a qualified tip.

(d) Trade or business limitations for tips received in course of trade or business —(1) In general. In the case of qualified tips received by an individual during any taxable year in the course of a trade or business (other than a trade or business of performing services as an employee) of such individual, such qualified tips shall be deducted only to the extent that the gross income for the taxpayer from such trade or business for such taxable year (including such qualified tips) exceeds the sum of the deductions (other than the deduction allowed for qualified tips) allocable to the trade or business in which such qualified tips are received by the individual for the taxable year. The deduction allowed for qualified tips is not taken into account for this purpose because it is not a trade or business deduction. Thus, generally, for self-employed taxpayers, the deduction under section 224 for a trade or business is limited to the individual’s net income (without regard to the section 224 deduction) from that trade or business.

(2) Examples . The following examples illustrate the rule of paragraph (d)(1) of this section.

(3) Example 1 . Manicurist M is self-employed and owns a nail salon. Manicurist M has no other employment. For the taxable year, Manicurist M has gross income of $100,000 that consists of $70,000 of fees for services at the nail salon and $30,000 of qualified tips. Manicurist M’s total deductible expenses (other than the deduction for qualified tips) are $40,000. Manicurist M’s gross income of $100,000 from the trade or business exceeds the sum of the deductions for that trade or business (other than qualified tips) by $60,000 ($100,000 - $40,000 = $60,000). Because the maximum deduction under section 224 and paragraph (b)(1) of this section is $25,000, Manicurist M is permitted to deduct $25,000.

(4) Example 2. Manicurist M is self-employed and owns a nail salon. Manicurist M has no other employment. For the taxable year, Manicurist M has gross income of $75,000 that consists of $55,000 of fees for services at the nail salon and $20,000 of qualified tips. Manicurist M’s total deductible expenses (other than the deduction for qualified tips) are $60,000. Manicurists M’s gross income of $75,000 from the trade or business exceeds the sum of the deductions from that trade or business by $15,000 ($75,000 - $60,000 = $15,000). Although Manicurist M received $20,000 in qualified tips, Manicurist M is allowed a qualified tip deduction of only $15,000, which is the extent to which Manicurist M’s gross income from the trade or business ($75,000) exceeds the total deductible expenses (other than qualified tips) ($60,000) from that trade or business.

(e) Social Security numbers and married individuals —(1) In general. To claim a deduction under section 224, a taxpayer must include on the taxpayer’s tax return the Social Security number (SSN), as defined in section 24(h)(7) of the Code, of the individual who has received the qualified tips.

(2) Married taxpayers. Taxpayers who are married, as defined by section 7703 of the Code, must file a joint return to claim the deduction allowed by section 224. However, to claim the deduction allowed by section 224, married taxpayers are required to include only the SSN of the taxpayer who has received the tips to claim the deduction, and an SSN is required of both taxpayers only when both have qualified tips for which the deduction is being claimed. In accordance with section 224(b)(1), the total amount of qualified tips that can be deducted per calendar year is $25,000 regardless of filing status. After applying the $25,000 limitation, the deduction amount is further subject to the phase-out based on the taxpayers’ modified adjusted gross income described in section 224(b)(2).

(3) Example. Taxpayers J and K are married, as defined in section 7703, and they file a joint income tax return. They both work in occupations that customarily and regularly received tips on or before December 31, 2024. J receives $15,000 in qualified tips in 2025, and K receives $20,000 in qualified tips in 2025. The maximum deduction J and K may claim pursuant to section 224 on their joint return for 2025 is $25,000.

(f) Occupations that customarily and regularly received tips on or before December 31, 2024 — (1) In general. The occupations in Table 1 customarily and regularly received tips on or before December 31, 2024. Subject to the requirements in section 224 and this section, only qualified tips received in connection with the occupations listed in Table 1 are eligible for the deduction in section 224(a).

(2) Specified service trade or business exclusion. An individual working in an occupation listed in Table 1 is not eligible for the deduction in section 224(a) with respect to any amounts received in the course of a trade or business that is a specified service trade or business. An individual engaged in the trade or business of being an employee is not eligible for the deduction in section 224(a) with respect to any amounts received for providing services for an employer in the course of a trade or business of the employer that is a specified service trade or business.

Table 1 to paragraph (f)(1)—Occupations that Customarily and Regularly Received Tips on or Before December 31, 2024

Treasury Tipped Occupation Code (TTOC) TTOC Occupation Title TTOC Occupation Description TTOC Illustrative Examples Related Standard Occupational Classification (SOC) System Code(s) 1 Beverage and Food Service 101 Bartenders Mix and serve drinks to patrons, directly or through waitstaff. Barkeep, mixologist, taproom attendant, sommelier 35-3011 102 Wait Staff Take orders and serve food and beverages to patrons at tables in dining establishment. Cocktail waitress, dining car server 35-3031 103 Food Servers, Non-restaurant Serve food to individuals outside of a restaurant environment, such as in hotel rooms, residential care facilities, or cars. Room service food server, boat hop, beer cart server 35-3041 104 Dining Room and Cafeteria Attendants and Bartender Helpers Facilitate food service. Clean tables; remove dirty dishes; replace soiled table linens; set tables; replenish supply of clean linens, silverware, glassware, and dishes; supply service bar with food; and serve items such as water, condiments, and coffee to patrons. Bar back, bar helper, busser 35-9011 105 Chefs and Cooks Direct and may participate in the preparation, seasoning, and cooking of salads, soups, fish, meats, vegetables, desserts, or other foods. Executive chef, pastry chef, sous chef, fast food cook, private chef, restaurant cook, saucier, food truck cook, banquet cook, caterer, chocolatier, confectioner 35-1011, 35-2011, 35-2013, 35-2014, 35-2019 106 Food Preparation Workers Perform a variety of food preparation duties other than cooking, such as preparing cold foods and shellfish, slicing meat, and brewing coffee or tea. Salad maker, sandwich maker, fruit and vegetable parer, kitchen steward 35-1012, 35-2021, 35-9099 107 Fast Food and Counter Workers Serve customers at counter or from a steam table. Perform duties such as taking orders and serving food and beverages. May take payment. May prepare food and beverages. Barista, ice cream server, cafeteria server 35-3023 108 Dishwashers Clean dishes, kitchen, food preparation equipment, or utensils. Dish room worker, silverware cleaner 35-9021 109 Host Staff, Restaurant, Lounge, and Coffee Shop Welcome patrons, seat them at tables or in lounge, and help ensure quality of facilities and service. Maître d'hôtel, dining room host 35-9031 110 Bakers Mix and bake ingredients to produce breads, rolls, cookies, cakes, pies, pastries, or other baked goods. Bread baker, cake baker, bagel baker, pastry finisher 51-3011 Entertainment and Events 201 Gambling Dealers Operate gambling games. Stand or sit behind table and operate games of chance by dispensing the appropriate number of cards or blocks to players or operating other gambling equipment. Distribute winnings or collect players’ money or chips. May compare the house's hand against players’ hands. Blackjack dealer, craps dealer, poker dealer, roulette dealer, pit clerk 39-3011, 39-1013, 39-3013 202 Gambling Change Persons and Booth Cashiers Exchange coins, tokens, and chips for patrons’ money. May issue payoffs and obtain customer's signature on receipt. May operate a booth in the slot machine area and furnish change persons with money bank at the start of the shift, or count and audit money in drawers. Slot attendant, mutuel teller 41-2012 203 Gambling Cage Workers In a gambling establishment, conduct financial transactions for patrons. Accept patron's credit application and verify credit references to provide check-cashing authorization or to establish house credit accounts. May reconcile daily summaries of transactions to balance books. May sell gambling chips, tokens, or tickets to patrons, or to other workers for resale to patrons. May convert gambling chips, tokens, or tickets to currency upon patron's request. May use a cash register or computer to record transaction. Casino cashier, cage cashier 43-3041 204 Gambling and Sports Book Writers and Runners Post information enabling patrons to wager on various races and sporting events. Assist in the operation of games such as keno and bingo. May operate random number-generating equipment and announce the numbers for patrons. Receive, verify, and record patrons’ wagers. Scan and process winning tickets presented by patrons and pay out winnings for those wagers. Betting runner, bingo worker, keno runner, race book writer 39-3012 205 Dancers Perform dances. Club dancer, dance artist 27-2031 206 Musicians and Singers Play one or more musical instruments or sing. Instrumentalist, accompanist, lounge singer 27-2042 207 Disc Jockeys, Except Radio Play prerecorded music for live audiences at venues or events such as clubs, parties, or wedding receptions. May use techniques such as mixing, cutting, or sampling to manipulate recordings. May also perform as emcee (master of ceremonies). Deejay, club DJ 27-2091 208 Entertainers and Performers Entertain audiences with artistic expression. Comedian, clown, magician, street performer 27-2099 209 Digital Content Creators Produce and publish on digital platforms original entertainment and personality-driven content, such as live streams, short-form videos, or podcasts. Streamer, online video creator, social media influencer, podcaster 27-2099 210 Ushers, Lobby Attendants, and Ticket Takers Assist patrons at entertainment events by performing duties, such as collecting admission tickets and passes from patrons, assisting in finding seats, searching for lost articles, and helping patrons locate such facilities as restrooms and telephones. Ticket collector, theater usher 39-3031 211 Locker Room, Coatroom, and Dressing Room Attendants Provide personal items to patrons or customers in locker rooms, dressing rooms, or coatrooms. Coat checker, washroom attendant, bathhouse attendant 39-3093 Hospitality and Guest Services 301 Baggage Porters and Bellhops Handle baggage for travelers at transportation terminals or for guests at hotels or similar establishments. Hotel baggage handler, curbside airport check-in assistant 39-6011 302 Concierges Assist patrons at hotels or apartment buildings with personal services. May take messages; arrange or give advice on transportation, business services, or entertainment; or monitor guest requests for housekeeping and maintenance. Hotel guest service agent, activities concierge 39-6012 303 Hotel, Motel, and Resort Desk Clerks Accommodate hotel, motel, and resort patrons by registering and assigning rooms to guests, issuing room keys or cards, transmitting and receiving messages, keeping records of occupied rooms and guests’ accounts, making and confirming reservations, and presenting statements to and collecting payments from departing guests. Front desk clerk, registration clerk 43-4081 304 Maids and Housekeeping Cleaners Perform any combination of light cleaning duties to maintain commercial establishments, such as hotels, in a clean and orderly manner. Duties may include making beds, replenishing linens, cleaning rooms and halls, and vacuuming. Hotel maid, housekeeping staff 37-2012 Home Services 401 Home Maintenance and Repair Workers Perform work to keep machines, mechanical equipment, or the structure of a building in repair. May maintain and repair musical instruments, furniture, antiques, and non-fixtures. Handyman, roofer, window repairer, house painter (interior or exterior), flooring installer, piano tuner, furniture restorer, antique repairer 49-9071, 49-9098, 49-9099, 49-9063, 49-2097, 51-7021 402 Home Landscaping and Groundskeeping Workers Landscape or maintain grounds of property using hand or power tools or equipment. Workers typically perform a variety of tasks, which may include any combination of the following: sod laying, mowing, trimming, planting, watering, fertilizing, digging, raking, sprinkler installation, and installation of mortarless segmental concrete masonry wall units. Lawn mower, gardener, tree trimmer, weed sprayer 37-3011 403 Home Electricians Install, maintain, and repair electrical wiring, equipment, and fixtures. Ensure that work is in accordance with relevant codes. May install or service exterior lights, intercom systems, or electrical control systems. Electrician 47-2111 404 Home Plumbers Assemble, install, alter, and repair pipelines or pipe systems that carry water, steam, air, or other liquids or gases. May install heating and cooling equipment and mechanical control systems. Plumber, pipefitter, steamfitter, sprinkler installer 47-2152 405 Home Heating and Air Conditioning Mechanics and Installers Install or repair heating, central air conditioning, HVAC, or refrigeration systems, including oil burners, hot-air furnaces, and heating stoves. Air conditioning repairer, heating system installer, chimney sweep 49-9021 406 Home Appliance Installers and Repairers Repair, adjust, or install all types of electric or gas household appliances, such as refrigerators, washers, dryers, and ovens. Washing machine installer, dishwasher repairer 49-9031 407 Home Cleaning Service Workers Perform any combination of light cleaning duties to maintain private households in a clean and orderly manner. Duties may include making beds, replenishing linens, cleaning rooms and halls, and vacuuming. House cleaner, pool cleaner, carpet cleaner, window washer 37-2012 408 Locksmiths Repair and open locks, make keys, change locks and safe combinations, and install and repair safes. Safe installer, key maker 49-9094 409 Roadside Assistance Workers Provide on-road assistance to drivers whose vehicles have broken down. Tow truck driver, car battery technician, tire repairer, tire changer, car fuel deliverer 49-3023, 53-3032 Personal Services 501 Personal Care and Service Workers Provide personalized assistance to individuals with disabilities or illness who require help with personal care and activities of daily living support (for example, feeding, bathing, dressing, grooming, toileting, and ambulation). May also provide help with tasks such as preparing meals, doing light housekeeping, and doing laundry. Work is performed in various settings depending on the needs of the care recipient and may include locations such as their home, place of work, out in the community, or at a daytime nonresidential facility. Elderly companion, personal care aide, butler, house sitter, personal valet 31-1122, 39-9099 502 Private Event Planners Coordinate activities of staff or clients to make arrangements for private events. May provide creative design for décor, floral arrangements, and invitations. Wedding planner, party planner, event florist 13-1121, 27-1023 503 Private Event and Portrait Photographers Photograph people, landscapes, or other subjects. May use lighting equipment to enhance a subject's appearance. May use editing software to produce finished images and prints. Wedding photographer, headshot photographer 27-4021 504 Private Event Videographers Operate video or film camera to record images or scenes of private events. Wedding videographer 27-4031 505 Event Officiants Lead and facilitate the ceremony for life events such as weddings or funerals. Ceremonies may be religious or civil services. Wedding officiant, funeral celebrant, clergy, vow renewal officiant 21-2010 506 Pet Caretakers Feed, water, groom, bathe, exercise, or otherwise provide care to promote and maintain the well-being of pets. Pet groomer, pet sitter, pet walker, kennel worker, pet trainer 39-2021 507 Tutors Instruct individual students or small groups of students in academic subjects to supplement formal class instruction or to prepare students for standardized or admissions tests. May provide instruction in person or remotely. Reading tutor, math tutor, language tutor 25-3041 508 Nannies and Babysitters Attend to children at businesses and private households. Perform a variety of tasks, such as dressing, feeding, bathing, and overseeing play. Au pair, child sitter at hotels and gyms 39-9011 Personal Appearance and Wellness 601 Skincare Specialists Provide skincare treatments to face and body to enhance an individual's appearance. Facialist, electrologist, spa esthetician 39-5094 602 Massage Therapists Perform therapeutic massages of soft tissues and joints. May assist in the assessment of range of motion and muscle strength or propose client therapy plans. Masseuse, deep tissue massage therapist, sports massage therapist 31-9011 603 Barbers, Hairdressers, Hairstylists, and Cosmetologists Provide beauty or barbering services, such as cutting, coloring, and styling hair, massaging and treating scalps, trimming beards or giving shaves. Wig stylist, beautician, hair colorist, hair cutter 39-5012, 39-5011 604 Shampooers Shampoo and rinse customers’ hair. Scalp treatment specialist, shampoo assistant 39-5093 605 Manicurists and Pedicurists Clean and shape customers’ fingernails and toenails. May polish or decorate nails. Nail technician, fingernail sculptor, nail painter 39-5092 606 Eyebrow Threading and Waxing Technicians Enhance and maintain clients’ eyebrows using techniques such as threading, waxing, or tweezing. Eyebrow waxer 39-5091 607 Makeup Artists Design and apply makeup looks. Wedding makeup artist, party makeup artist 39-9031 608 Exercise Trainers and Group Fitness Instructors Instruct or coach groups or individuals in exercise activities for the primary purpose of personal fitness. Demonstrate techniques and form, observe participants, and explain to them corrective measures necessary to improve their skills. Develop and implement individualized approaches to exercise. Aerobics trainer, yoga instructor, personal trainer 27-1019 609 Tattoo Artists and Piercers Design and execute tattoos on a client's skin, often using a needle and ink. Create openings in the human body for the insertion of jewelry. May consult clients on aftercare to promote healing and prevent infection. Tattoo artist, ear piercer, nose piercer 51-6052 610 Tailors Design, make, alter, repair, or fit garments. Tailor, seamstress, clothing alterations worker 51-6041 611 Shoe and Leather Workers and Repairers Construct, decorate, or repair leather and leather-like products, such as luggage, shoes, and saddles. May use hand tools. Cobbler, shoe shiner 39-5012 Recreation and Instruction 701 Golf Caddies Assist a golfer during a round of golf by providing practical support and strategic advice. May carry the golfer's bag, manage their clubs, offer guidance on club selection or course strategy. Golf caddie, golf cart attendant 39-3091 702 Self-Enrichment Teachers Teach or instruct individuals or groups for the primary purpose of self-enrichment, rather than for an occupational objective, educational attainment, competition, or fitness. Knitting instructor, piano teacher, art instructor, dance teacher 25-3021 703 Recreational and Tour Pilots Pilot and navigate the flight of fixed-wing aircraft, helicopters, or other airborne vehicle for recreational or touring purposes. Excludes regional national, and international airline pilots, and emergency services pilots. Helicopter tour pilot, hot air balloon aeronaut, skydiving pilot 25-3021 704 Tour Guides Guide individuals or groups on sightseeing tours or through places of interest, such as industrial establishments, public buildings, and art galleries. Museum guide, sightseeing guide 39-7011 705 Travel Guides Plan, organize, and conduct long-distance travel, tours, and expeditions for individuals and groups. Cruise director, river expedition guide 39-7012 706 Sports and Recreation Instructors Teach or instruct individuals or groups for the primary purpose of recreation, rather than for an occupational objective, educational attainment, competition, or fitness. Diving instructor, ski instructor, tennis teacher, surfing instructor 53-2012 Transportation and Delivery 801 Parking and Valet Attendants Park vehicles or issue tickets for customers in a parking lot or garage. May park or tend vehicles in environments such as a hotel or restaurant. May collect fee. Parking garage attendant, valet parker 53-6021 802 Taxi and Rideshare Drivers and Chauffeurs Drive a motor vehicle to transport passengers on a planned or unplanned basis. Cab driver, personal driver 53-3054 803 Shuttle Drivers Drive a motor vehicle to transport passengers on a planned route and scheduled basis. May collect a fare. Excludes taxi and rideshare drivers, chauffeurs, municipal bus drivers, and school bus drivers. Airport shuttle driver, hotel shuttle driver, rental car shuttle driver 53-3053 804 Goods Delivery People Drive truck or other vehicle over established routes or within an established territory to deliver goods, such as food products, appliances, or furniture, or pick up or deliver packages. May also take orders or collect payment at point of delivery. Pizza delivery driver, grocery delivery driver, floral delivery, bicycle courier, package delivery person, appliance delivery driver, furniture delivery person 53-3031 805 Personal Vehicle and Equipment Cleaners Wash or otherwise clean personal vehicles, machinery, and other equipment. Use such materials as water, cleaning agents, brushes, cloths, and hoses. Car wash attendant, auto detailer, boat waxer 53-7061 806 Private and Charter Bus Drivers Drive bus or motor coach for charters or private carriage. May assist passengers with baggage. Motor coach bus driver, tour bus driver 53-3052 807 Water Taxi Operators and Charter Boat Workers Operate water taxi boats or provide services to passengers on private charter boats. May assist in navigational activities. Water taxi captain, air boat operator, charter boat deckhand, charter boat steward 53-5022 808 Rickshaw, Pedicab, and Carriage Drivers Operate rickshaw, pedicab, or carriage to transport passengers. Horse drawn carriage driver, bike taxi driver 53-6099 809 Home Movers Manually move furniture, music instruments, art, antiques, boxes, luggage, or other materials to or from a home or dwelling. Furniture mover, packer, piano mover, art mover 53-7062

1. “Related Standard Occupational Classification (SOC) System Code(s)” are the code(s) from the 2018 Standard Occupational Classification System, as published by the Executive Office of the President, Office of Management and Budget, that most closely correlate(s) to the Treasury Tipped Occupation Code (TTOC).

(g) Termination. No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.

(h) Applicability date. This section applies to taxable years beginning after December 31, 2024.

Edward T. Killen, Acting Chief Tax Compliance Officer.

(Filed by the Office of the Federal Register September 19, 2025, 8:45 a.m., and published in the issue of the Federal Register for September 22, 2025, 90 FR 45340)

1 Under section 3121(q), tips are also considered wages for Federal Insurance Contributions Act (FICA) purposes. However, the deduction under section 224 does not apply for FICA purposes and is not taken into account in determining wages subject to FICA tax. Similarly, the deduction under section 224 does not apply for Self-Employment Contributions Act (SECA) purposes and is not taken into account for purposes of determining net earnings subject to SECA tax.

2 The House Budget Committee report on the OBBBA, H. Rept. 119-106, at 1503 (2025), specifies that the qualified tip amounts included on reporting statements (for example, Form 1099) must be separately accounted for on the statements.

3 Section 199A(d)(2) cross references the qualified trade or business definition in section 1202(e)(3)(A), with certain modifications.

4 The Code does use the term “customarily” in section 6053(c)(3). Section 6053(c)(3) requires large food or beverage establishments to allocate tips among “employees performing services during any payroll period who customarily receive tip income.” Section 6053(c)(4) defines the term “large food or beverage establishment” as a trade or business “with respect to which the tipping of employees serving food or beverages by customers is customary.” Regulations under section 6053(c) provide further guidance concerning the term “customary.” Section 31.6053-3(j)(6) excludes “fast food” operation from the definition of “food or beverage operation.” Section 31.6053-3(j)(7) provides that, for purposes of defining “large food or beverage establishments,” tipping would not be considered customary for a cafeteria style operation or for a food or beverage operation where at least 95% of its total sales are nonallocable receipts (defined as carryout sales and sales with service charges). A “cafeteria style operation” is defined in § 31.6053-3(j)(18) as a food or beverage operation which is primarily self-service and in which the total cost of food or beverages selected by a customer is paid prior to the customer’s being seated or is stated on a check provided to the customer prior to the customer’s being seated and is paid by the customer to a cashier.

5 Oxford University Press. (n.d.). Customarily, adv. In Oxford English dictionary. Retrieved July 31, 2025, from https://doi.org/10.1093/OED/1071895970.

6 Oxford University Press. (n.d.). Regularly, adv., 1.a. In Oxford English dictionary. Retrieved July 31, 2025, from https://doi.org/10.1093/OED/1195323874.

7 Under the FLSA, employers take a tip credit of up to $5.12 per hour to bring an employee’s total earnings up to the Federal minimum wage amount. See 29 USC 203(m)(2)(A)(i)-(ii); see also Fair Labor Standards Amendments of 1989, Pub. L. 101–157, § 5, 103 Stat. 938, 941 (1989) (requiring employers to pay directly at least “50 percent of the [$4.25 per hour] minimum wage rate after March 31,1991”).

8 The FLSA’s tip credit has several components, including that an employee must be in an occupation in which the employee customarily and regularly receives at least a certain amount per month in tips (more than $30), retains all tips (except for a pool limited to employees who customarily and regularly receive tips), receives other direct wages, and receives advance notice to qualify as a “tipped employee” for whom an employer may take a tip credit against its minimum wage obligations. See 29 U.S.C. 203(m)(2)(A), (t).

9 The regulations also provide that “if an employee is in an occupation in which he normally and recurrently receives more than $30 a month in tips, he will be considered a tipped employee even though occasionally because of sickness, vacation, seasonal fluctuations or the like, he fails to receive more than $30 in tips in a particular month.” 29 CFR 531.57.

10 See DOL Field Operation Handbook, §30d08. Retrieved August 19, 2025, from https://www.dol.gov/agencies/whd/field-operations-handbook; see also WHD Opinion Letter FLSA2009-12 (Jan. 15, 2009); WHD Opinion Letter FLSA2008-18 (Dec. 19, 2008); and WHD Opinion Letter FLSA-858 (June 28, 1985) (concluding that barbacks, itamae-sushi and teppanyaki chefs, and a “wine-server/captain-host,” respectively, could be included in a tip pool with tipped employees for whom the employer took a tip credit)..

11 See, e.g., Wai Man Tom v. Hosp. Ventures LLC , 980 F.3d 1027, 1040 (4th Cir. 2020); Montano v. Montrose Rest. Assocs., Inc. , 800 F.3d 186, 191 (5th Cir. 2015) (finding that “[t]he common thread of the cases and the DOL opinion letters is to require a tipped employee to have more than a de minimis interaction with the customers who leave the undesignated tips” for purposes of the FLSA tip credit.); Myers v. Copper Cellar Corp. , 192 F.3d 546, 550-51 (6th Cir. 1999); Kilgore v. Outback Steakhouse of Fla., Inc. , 160 F.3d 294, 301 (6th Cir. 1998) (noting that restaurant hosts “sufficiently interact with customers in an industry where undesignated tips are common.”).

12 Section 224(d)(1) specifies that the occupation must have customarily and regularly received tips on or before December 31, 2024 . The Treasury Department and the IRS reviewed data for the 2023 tax year because that was the most recent year for which comprehensive income tax return data was available. The Treasury Department and the IRS compared the 2023 tax year data to similar data for 2017-2022. Because 2023 data was similar to prior year data, the Treasury Department and the IRS have reviewed preliminary data for the 2024 tax year and anticipate that final 2024 data will be substantially similar to 2023 data.

13 While tip income must be included in the total income that independent contractors report on their income tax returns, independent contractors did not separately report tips on their income tax returns and payors did not separately report tips to payees on Forms 1099.

14 Taxpayers have a single line to report their occupation on the Form 1040. The 1040 instructions do not address how to report multiple occupations. Some taxpayers reported more than one occupation. Additionally, some taxpayers with multiple jobs only reported one occupation. When analyzing the tax return data, it was sometimes difficult to determine which occupation resulted in the receipt of tips. Therefore, the Treasury Department and the IRS limited the main analysis of the tax return data to taxpayers with only one job by limiting the data to taxpayers who submitted one Form W-2 with their Form 1040, did not file a Schedule C or Schedule F, and reported no active income from a partnership or S corporation on Schedule E.

15 The GITCA program was established by Rev. Proc. 2003-35, 2003-20 I.R.B. 919, and was updated by Rev. Proc. 2007-32 with a new model GITCA. Revenue Procedure 2020-47, 2020-48 I.R.B. 1121 modified Rev. Proc. 2007-32 to provide that the term of a GITCA is generally five years.

16 Initial drafts of the OBBBA legislation contemplated a deduction for tips received by individuals in occupations that traditionally and customarily received tips, but this language was later revised to refer to occupations that customarily and regularly received tips.

17 See Montano v. Montrose Rest. Assocs., Inc. , 800 F.3d 186, 189 (5th Cir. 2015) (noting that “[i]t would be circular” to interpret the FLSA to mean that if an employer requires a tipped employee to give another employee tips, that employee customarily and regularly receives tips for purposes of 29 USC 203(m)(2)(A)’s tip pooling limitation).

18 Office of Management and Budget. (2018). Standard Occupational Classification Manual. U.S. Government Publishing Office. This manual and other related SOC documents can be found at https://www.bls.gov/soc.

19 Id.

20 Id.

21 For instance, the SOC Code for “Animal Caretakers,” is described in the 2018 SOC Code System as an occupation in which individuals “provide care to promote and maintain the well-being of pets and other animals that are not raised for consumption.” More specific occupations that would fall under this description include both pet caretakers and zookeepers. Pet caretakers customarily and regularly receive tips. Zookeepers, on the other hand, do not. Thus, if the “Animal Caretakers” SOC code were included in the list of occupations that customarily and regularly receive tips, then zookeepers would become part of the list via their corresponding SOC code, even though they do not customarily and regularly receive tips.

22 References to a “section” are to a section of the Internal Revenue Code of 1986, as amended (Code), unless otherwise indicated.

23 See supra, Explanation of Provisions, Sec. 4.A.

24 See Montano v. Montrose Rest. Assocs., Inc. , 800 F.3d 186, 189 (5th Cir. 2015) (noting that “[i]t would be circular” to interpret the FLSA to mean that if an employer requires a tipped employee to give a second employee tips, that second employee customarily and regularly receives tips for purposes of 29 USC 203(m)(2)(A)’s tip pooling limitation).

25 The SOC Code system is published by the Executive Office of the President, Office of Management and Budget. The SOC Code system is a Federal statistical standard used by Federal agencies to classify workers into occupational categories for the purposes of collecting, calculating, or disseminating data. See Office of Management and Budget. (2018). Standard Occupational Classification Manual. U.S. Government Publishing Office. This manual and other related SOC documents can be found at https://www.bls.gov/soc.

26 Taxpayers have a single line to report their occupation on the Form 1040. If they have multiple occupations, they may write the occupation for only one of their jobs or they may write multiple occupations. However, when analyzing the tax return data, it would be difficult to determine to which job any reported tips should be assigned when a taxpayer has multiple jobs. Therefore, the Treasury Department and the IRS limited the main analysis of the tax return data to taxpayers with only one job. However, even among this sample, some taxpayers may write both the occupation from their job and a title for a role where they may not receive income, such as “Student/Occupation.”

27 Since tips are reported separately from other compensation for employees but not for self-employed individuals in the current tax return data, these screening criteria that limit the sample to employees with a single job were utilized to better illuminate the link between the self-reported occupations and reported tips.

28 Initial drafts of the OBBBA legislation contemplated a deduction for tips received by individuals in occupations that traditionally and customarily received tips, but this language was later revised to refer to occupations that customarily and regularly received tips.