In brief
Following President Trump’s tax reform, the Treasury Department has laid out proposed regulations clarifying which tipped jobs qualify for the 'No Tax on Tips' provision. Key points include specifications on eligible occupations, the nature of tips, and reporting requirements. While this initiative is set to reduce tax burdens for some 4 million workers in tipped roles, concerns arise about its potential impact on federal revenue.
WASHINGTON (AP) — The Treasury Department is on the path to realizing President Donald Trump’s 'no tax on tips' promise, as recent guidance restricts the number of workers eligible for this benefit.
On Friday, the agency submitted proposed regulations to the Federal Register, elaborating on the occupations that qualify for tax exemption and defining 'qualified tips.'
The initiative, part of Republicans' extensive tax and spending law signed by Trump in July 2025, abolishes federal income taxes on tips for certain workers in tipped roles, allowing them to deduct up to $25,000 annually from 2025 to 2028. The deduction phases out for those with modified adjusted gross incomes above $150,000.
To meet the criteria of a tip, payments must derive from jobs listed on the Treasury’s 'qualified occupations' roster. Exempt jobs include sommeliers, cocktail waiters, and various service positions, while those who receive mandatory gratuities or auto-tips are not eligible. Additionally, tips must be given in traditional physical forms, excluding digital assets.
The program aims to retroactively apply benefits back to January 1, 2025.
According to the Yale Budget Lab, there are approximately 4 million tipped workers in the U.S., comprising around 2.5% of the workforce. Critics argue that the new provision could inflate the deficit by $40 billion by 2028, while the Joint Committee on Taxation has estimated the deduction could cost $32 billion over the next decade.
Only tips disclosed to employers and appearing on workers' W-2s will qualify, and while federal taxes on these tips will be removed, associated payroll taxes will continue to apply.
