The new “No Tax on Tips” law, part of the One Big Beautiful Bill Act signed on July 4, 2025, allows certain workers to deduct qualified tip income from federal taxable income. This deduction applies from 2025 through 2028. Therefore, it provides meaningful tax relief for service workers.
Who Qualifies?
The IRS and Treasury have released a preliminary list of 68 occupations that qualify because they “customarily and regularly received tips on or before December 31, 2024.” Final regulations are expected soon. For more details, see the full Treasury / IRS Preliminary List of Tipped Occupations.
These occupations cover many industries. For example:
Beverage & Food Service: bartenders, wait staff, cooks, dishwashers, chefs, food prep workers, host staff, bakers.
Entertainment & Events: musicians, singers, DJs, dancers, performers, ushers, ticket takers, digital content creators.
Hospitality & Guest Services: hotel desk clerks, bellhops, concierges, housekeeping staff.
Home Services: electricians, plumbers, landscapers, locksmiths, appliance repair, home cleaning, roadside assistance.
Personal Appearance & Wellness: hairstylists, barbers, massage therapists, tattoo artists, nail technicians, estheticians, makeup artists, fitness instructors.
Personal Services: tutors, babysitters, nannies, pet sitters, event planners, photographers, videographers, event officiants.
Recreation & Instruction: tour guides, instructors, recreation workers.
Transportation & Delivery: taxi or rideshare drivers, valet/parking attendants, delivery workers, shuttle drivers, water taxi or charter boat workers, home movers.
Key Rules & Limits
In addition, there are some rules to keep in mind:
- Workers may deduct up to $25,000 per year of qualified tip income.
- Income limits apply: $150,000 for single filers and $300,000 for joint filers.
- Only voluntary tips reported to the employer or IRS qualify. Mandatory service charges do not.
What Small Business Owners Should Do Now
First, review which roles in your business match the occupations on the IRS list. Next, update payroll systems and record-keeping to properly account for qualified tips. In addition, train managers and staff to understand what counts as tip income versus non-qualified income. Finally, monitor final regulations expected later in 2025 to ensure compliance.
Bottom Line
Overall, the “No Tax on Tips” law provides important tax relief for millions of tipped workers. It also creates opportunities for small business owners to attract and retain employees. Therefore, staying informed and compliant is essential to take full advantage.
If you have questions about how the new “No Tax on Tips” rules affect your business or employees, contact us at X‑Accounting for expert guidance.