Ministry of Finance announces job openings eligible for tip tax exemption
The U.S. Treasury Department has released a tentative list of occupations that do not require workers to pay taxes or tips.
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- The final regulations list more than 70 occupations for tipped workers, from bartenders to clowns, golf caddies, locksmiths and massage therapists.
- Tip income with a “service charge” is not subject to “unless the customer has the option to ignore or change the service charge.”
Days before the April 15 tax deadline, the Internal Revenue Service released final rules and clarifications regarding jobs and situations that qualify for the so-called “tip tax-free” deduction.
A provisional list published in September provided taxpayers with some advance guidance on which occupations are “tipping tax free.”
The list is long, but so is the list of reasons why you may or may not qualify for the new deduction of up to $25,000 on tip income.
The final regulations list more than 70 occupations of tipped workers, from bartenders to clowns, golf caddies, locksmiths, massage therapists, podcasters and water taxi drivers, who may be able to claim a deduction for certain tip income. Other guidelines, such as income limits, must also be met.
What new jobs are on your career list?
One update: The final regulations expanded the list to include visual artists and floral designers in the personal services category and added gas pump attendants in the transportation and delivery category.
The Treasury Department and Internal Revenue Service have also defined “qualified tips” that eligible taxpayers can claim as a deduction.
According to a release issued April 10, the Treasury Department and IRS received more than 300 comments. The hearing was held on October 23, 2025. The final rule describes comments and how they are addressed in the final rule.
What tips qualify? What’s not?
The final rule further clarifies that eligible tips must meet certain requirements, including the method of tip payment.
Eligible tips can be paid by cash, check, credit card, debit card, or gift card. The IRS also said eligible chips can include “fixed amounts in cash or tangible or intangible tokens that are readily exchangeable with another form of cash-denominated electronic payment or mobile payment application.”
Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting in Riverwoods, Illinois, said eligible chips do not include physical or intangible forms that cannot be easily converted into a fixed amount, such as virtual currency, non-fungible tokens, in-kind gifts or anything that must be resold to determine its value.
“A tip is a qualified tip only if, at the time of receipt, the taxpayer can associate a certain amount with the tangible or intangible item received and can immediately convert that amount into cash,” Luscombe said.
Additionally, as previously reported, tip income eligible for the Schedule 1-A tax deduction does not include “service charges unless the customer has the option to ignore or change the service charge.”
The IRS gave examples such as when a restaurant automatically charges an 18% service charge for large parties and splits that amount among waiters, bus drivers, and kitchen staff.
“If a fee is added without the customer having the option to ignore or change it, the amount distributed to the worker from this service charge is not a qualified tip,” the IRS said in a Friday, April 10, news release.
According to the IRS, “qualifying tips must be paid voluntarily by the customer and are not negotiable.”
What is the income limit for “tip tax exemption”?
Income limits apply. If you earn too much overall, you may qualify for a partial tax break or no tax break at all.
The deduction for tip income will begin to phase out for single taxpayers with modified adjusted gross incomes above $150,000 and for married couples filing joint returns above $300,000.
This deduction will eventually phase out at a rate of $100 for every $1,000 above the threshold.
The tax break on tip income completely phases out once adjusted gross income reaches $400,000 for single filers and $550,000 for married couples filing jointly.
If you’re married, remember that you’re looking at the couple’s modified adjusted gross income, not just the spouse receiving the tip income. If a married couple files separately, they cannot claim the tip income deduction.
Another important point: Workers can only take a deduction for qualified tips included on Form W-2, Form 1099-NEC, Form 1099-MISC, Form 1099-K, or reported by the worker on Form 4137.
The IRS said gig workers and other self-employed workers are also eligible for this deduction if their occupation is on the “list of tipped occupations” and other legal and regulatory requirements are met. The new law limits the self-employed deduction to the individual’s net income.
“Taxpayers are already benefiting from the tip tax exemption because the IRS has already issued refunds to eligible workers,” IRS Chief Executive Officer Frank J. Bisignano said in a statement Friday, April 10.
“Given the wide variety of tipped workers, these final regulations will help implement important tax benefits for American workers.”
The IRS noted that the list of tipped occupations is categorized by the “Treasury Tipped Occupation Code” system, which consists of a three-digit code and description for each occupation listed in the final regulations. Occupations are divided into eight categories.
- 100s – Beverage and Food Service
- 200s – Entertainment and Events
- 300s – Hospitality and Guest Services
- 400s – Home Services
- 500s – Personal Service
- 600s – Appearance and Health
- 700s – Recreation and Instruction
- 800s – Transport and delivery
Contact personal finance columnist Susan Tompol: stompor@freepress.com. follow himr X @tompor.
