Qualified occupations covered under ‘no tax on tips’ provision

No tax on tips may become a reality, although guidance released on Friday tends to limit the number of tipped workers who will claim the benefit.

According to the Hawaiʻi Restaurant Association, the U.S. Treasury Department is moving ahead with President Donald Trump’s “no tax on tips” pledge, but new guidance narrows who will benefit. Proposed regulations detail which jobs qualify for the deduction and what counts as a “tip.”

To qualify as a tip, the tips must be earned in an occupation on Treasury’s list of qualified occupations, and must be voluntarily given, so mandatory tips or auto-gratuities would not qualify.

Tip pools and similar arrangements qualify as long as they are reported to the IRS and voluntary. The benefit is not available to married individuals who file their taxes separately.

Among the jobs exempted from tax include: sommeliers, cocktail waiters, gardeners, electricians, house cleaners, massage therapists, DJs, clowns, podcasters, influencers, and online video creators.

The “no tax on tips” provision in Republicans’ massive tax and spending law, signed by Trump in July, eliminates federal income taxes on tips for people working in jobs that have traditionally received them.

It allows certain workers to deduct up to $25,000 in “qualified tips” per year from 2025 through 2028. The deduction phases out for taxpayers with a modified adjusted gross income over $150,000.

The tip must be given in cash, check, debit card, gift card, or any item exchangeable for a fixed amount of cash, unlike digital assets. Additionally, any amount received for illegal activity, prostitution services or pornographic activity does not qualify as a tip, according to the Treasury Department.

Yale Budget Lab estimates that there were roughly 4 million workers tipped occupations in 2023, which amounts to about 2.5% of all jobs.

The “no tax on tips” provision will be implemented retroactively to Jan. 1, 2025.

Congressional budget analysts project the “no tax on tips” provision would increase the deficit by $40 billion through 2028. The nonpartisan Joint Committee on Taxation estimated in June that the tips deduction will cost $32 billion over 10 years.