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The Treasury Department on Friday released new guidance on President Donald Trump’s “no tax on tips” promise, narrowing the scope of workers eligible to benefit from the recently enacted tax break.
The proposed regulations, submitted to the Federal Register, spell out which occupations qualify, what counts as a “tip,” and who may claim the deduction. The provision, part of the Republican tax and spending package signed into law by Trump in July, exempts federal income taxes on tips for certain workers and allows deductions of up to $25,000 in “qualified tips” per year from 2025 through 2028. The benefit phases out for individuals earning more than $150,000 annually.
Who qualifies
The Treasury’s guidance defines a tip as money voluntarily given by a customer. Mandatory service charges, such as auto-gratuities, are excluded, though tip pools and similar sharing arrangements may qualify if reported to the IRS. To be eligible, tips must come from occupations on Treasury’s approved list.
Among the covered jobs are cocktail waiters, sommeliers, pastry chefs, bingo workers, DJs, club dancers, ushers, house cleaners, movers, delivery drivers, gardeners, massage therapists, wedding planners, yoga instructors, au pairs, tutors, and ski instructors. However, married individuals who file taxes separately cannot claim the deduction.
Tips must also be received in cash, check, debit card, or gift card. Digital assets, such as cryptocurrency, do not qualify. Payments tied to illegal activity — including prostitution or pornography — are also explicitly excluded.
Economic impact
The provision will apply retroactively to January 1, 2025. The Yale Budget Lab estimates that about 4 million workers, or 2.5% of U.S. jobs, were in tipped occupations in 2023.
Budget analysts warn the new law will have a significant fiscal impact. The Congressional Budget Office projects the provision will increase the federal deficit by $40 billion through 2028. In June, the nonpartisan Joint Committee on Taxation estimated the measure would cost $32 billion over the next decade.
Importantly, while federal income taxes on qualified tips will be waived, workers will still owe payroll taxes, which fund Social Security and Medicare, as well as state and local taxes. Only tips reported to employers and listed on W-2 tax forms will qualify.
Political backdrop
Trump championed the “no tax on tips” pledge during his 2024 presidential campaign, pitching it as a way to put more money directly in the hands of service workers. Supporters say the law will help low-income employees, particularly in the hospitality and service industries, while critics argue it disproportionately benefits higher earners and adds to the federal deficit.
The Treasury’s guidance provides the clearest picture yet of how the policy will function, but additional public comments and revisions are expected before the regulations are finalized.
