IRS Defines Tipped Jobs and Qualified Tips for Tax Savings
Published Date: 4/13/2026
Rule
Summary
Starting June 12, 2026, the IRS officially lists which jobs regularly get tips and defines what counts as 'qualified tips' for tax deductions. If you earn tips in your job, this rule helps you know what tips you can deduct on your taxes, based on how things were before 2025. This update makes tipping rules clearer and could save some tip earners money on their taxes!
Analyzed Economic Effects
9 provisions identified: 4 benefits, 5 costs, 0 mixed.
IRS Publishes Single List of Tipped Jobs
Starting June 12, 2026, the IRS publishes a list of occupations that "customarily and regularly received tips" on or before December 31, 2024. Only tips received in occupations on that official list qualify as "qualified tips" for the section 224 tax deduction.
Annual Tip Deduction Capped at $25,000
The section 224 deduction for qualified tips is limited to an amount not to exceed $25,000 in a taxable year. This cap applies to the deduction claimed on an individual's income tax return.
Deduction Phases Out at Higher Incomes
The section 224 deduction phases out for taxpayers with modified adjusted gross income over $150,000, and the phaseout threshold is $300,000 for joint filers. Taxpayers above these thresholds will get a reduced or no deduction.
Married Filing Separately Excluded
The section 224 deduction is available only if the taxpayer and the taxpayer's spouse file a joint return. Married taxpayers who file separately cannot claim the qualified tips deduction.
Deduction Is Temporary — Ends After 2028
Section 224 provides that no deduction is allowed for any taxable year beginning after December 31, 2028. The tip deduction is therefore time-limited through tax years that begin on or before December 31, 2028.
New Tip Reporting for Contractors and Employees
Beginning in tax year 2026, information returns furnished to both independent contractors and employees will separately report certain tips. The Treasury/IRS issued Notice 2025-62 (Nov 5, 2025) providing penalty relief for certain 2025 reporting and Notice 2025-69 (Nov 21, 2025) with guidance for claiming the deduction for 2025.
Qualified Tips Must Meet Specific Tests
Qualified tips must be voluntarily paid without consequence if not paid, not negotiated, determined by the payor, and must not be received in the course of a specified service trade or business (as defined in section 199A(d)(2)). The Secretary may also establish additional requirements by regulation.
What Counts as Cash Tips and Tip Pools
For section 224, "cash tips" include tips paid in cash or charged, and, for employees, tips received under any tip-sharing arrangement count as cash tips. This affects employees who participate in tip pools or receive charged tips.
SSN Required to Claim Deduction
No deduction under section 224 is allowed unless the taxpayer includes the individual's Social Security number (SSN) on the tax return for the taxable year, per section 224(e).
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