New IRS “No Tax on Tips” Deduction – Who is Eligible?
The Internal Revenue Service (IRS) and the U.S. Department of the Treasury have released preliminary guidance on eligibility for the new “No Tax on Tips” deduction, created by the One Big Beautiful Bill Act (OBBBA) signed into law July 4, 2025. This new federal income tax deduction allows eligible workers to deduct up to $25,000 in tip income annually from 2025 through 2028.
Digital Creators and Gig Workers Included
The Treasury’s guidance (see below for a full list) explicitly encompasses many occupations, including gig workers, such as Uber and Lyft drivers, and digital content creators—defined as individuals who produce and publish original entertainment or personality-driven content on platforms like Twitch, TikTok, and podcasting apps. This marks a significant expansion of tip-related tax relief to the gig economy.
What the IRS Says About Qualified Tips
- Voluntary cash or charged tips received directly from customers
- Tips received through tip-sharing arrangements
- Tips reported on Form W-2, Form 1099, or Form 4137
The deduction is available to both employees and self-employed individuals, though self-employed workers cannot deduct more than their net income from the business in which the tips were earned. Specified Service Trades or Businesses (SSTBs)—such as law, finance, and consulting—are excluded from eligibility.
Income Limits and Phase-Outs
The deduction phases out for taxpayers with Modified Adjusted Gross Income (MAGI) above $150,000 for single filers, and $300,000 for joint filers. For every $1,000 over the threshold, the deduction is reduced by $100.
Occupational Eligibility: Treasury’s Preliminary List
According to IRS Fact Sheet FS-2025-03, employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS and the Treasury as ‘customarily and regularly receiving tips on or before December 31, 2024,’ but the OBBBA did not list specific occupations that are eligible for the deduction.
Axios reported that the IRS has shared a preliminary list of eligible occupations, and that this list will be finalized and published in the Federal Register by October 2, 2025, with public comment invited.
| Category | Example Occupations |
|---|---|
| Beverage & Food Service | Bartenders, wait staff, chefs, dishwashers, bakers, hosts, fast food workers |
| Entertainment & Events | Musicians, dancers, DJs (non-radio), performers, gambling workers, digital content creators (e.g., influencers, streamers, podcasters) |
| Hospitality & Guest Services | Hotel clerks, concierges, maids, bellhops |
| Home Services | Electricians, plumbers, HVAC installers, landscapers, home cleaners |
| Personal Services | Tutors, nannies, pet caretakers, photographers, event planners |
| Appearance & Wellness | Hairdressers, massage therapists, makeup artists, tattoo artists, fitness instructors |
| Recreation & Instruction | Golf caddies, tour guides, sports instructors |
| Transportation & Delivery | Uber and Lyft drivers, taxi drivers, valet attendants, delivery workers, charter boat operators |
Reporting Requirements and IRS Forms
To claim the deduction, taxpayers must:
- Include their Social Security number on the return
- File jointly if married
- Ensure tip income is reported via Form W-2, Form 1099, or Form 4137
The IRS will provide transition relief for the 2025 tax year to help employers and workers comply with new reporting rules.
Criticism and Limitations
While the policy is intended to benefit service workers, critics argue its impact may be limited:
- Many tipped workers already earn below the federal tax threshold
- The policy may reinforce tipping culture over wage reform
The information in this article is the latest available. The OBBBA made a number of sweeping changes to tax law. The IRS and Treasury will continue to announce clarifications and refinements that will affect taxpayers and tax preparers. Visit the IRS site often, and sign up for the agency’s alerts and newsletters to stay up with the latest developments. Latino Tax Professionals Association will continue to report on these updates.
