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The U.S. Department of the Treasury and the IRS on Friday issued proposed regulations with more details about President Donald Trump’s “no tax on tips” deduction.
Enacted via Trump’s “big beautiful bill” in July, the provision allows certain workers to deduct up to $25,000 in “qualified tips” per year from 2025 through 2028. The tax break on tips gets smaller once modified adjusted gross income exceeds $150,000.
Since the deduction applies to current-year earnings, it has sparked questions from tipped workers and tax professionals — including the question of which jobs qualify. The agencies issue proposed regulations to help interpret the law, and will release final regulations after a period for public comment.
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In 2023, there were roughly 4 million U.S. workers in tipped occupations, representing 2.5% of all employment, according to estimates from The Budget Lab at Yale University.
Here are some key things to know about the new tax break, according to Treasury officials.
Some tipped ‘SSTBs’ won’t qualify
The Treasury in August released a preliminary list of 68 occupations that “customarily and regularly received tips” as of Dec. 31, 2024, as required by Trump’s legislation.
However, certain jobs known as so-called “specified service trade or businesses,” or SSTBs, don’t qualify, Treasury officials told reporters on Thursday.
SSTBs include sectors like health care, legal, financial services, performing arts and more. Trump’s 2017 tax law outlined the list of SSTBs when it limited eligibility for a 20% deduction for certain businesses.
‘Automatic gratuity’ is not eligible
Treasury officials also confirmed that automatic gratuity won’t count as a qualified tip because the payment isn’t given to workers voluntarily.
For instance, tips earned because a restaurant requires an 18% fixed gratuity for parties of six or more would would not qualify for the tax break.
Treasury officials on a Thursday press call said that the new tax break is complicated and said they will provide further guidance when the regulation is finalized.
Claim up to $25,000 per tax return
The no tax on tips deduction is worth up to $25,000 per return, according to the proposed regulations.
That means married taxpayers filing jointly are limited to up to $25,000 on their joint filing. But the tax break is not available for married couples filing separate tax returns, Treasury officials said during the call.
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