The proposed regulations on the new One Big Beautiful Bill tip income tax break also specifically note types of work that do not qualify. Not surprisingly, creators of online adult content and those in the world's oldest profession will not be allowed to claim the tips deduction.
Treasury Secretary Scott Bessent visited several Washington, D.C.-area restaurants and bars to tout the no tax on tips provision in the One Big Beautiful Bill (OBBB) Act.
During interviews at the eateries and watering holes, Bessent also released a list of 68 occupations the Trump administration says would benefit from the new, temporary tax break.
Today, Treasury and the Internal Revenue Service made the list official, and also issued proposed regulations on implementing and enforcing the new tax law.
Codes for eight work categories: As revealed earlier this month, the types of work where tips are customarily and regularly received cover eight occupational categories.
The Treasury Tipped Occupation Code assigns a three-digit code and descriptions for the occupations listed within the no tax on tips proposed regulations. They are —
- 100s — Beverage and Food Service
- 200s — Entertainment and Events
- 300s — Hospitality and Guest Services
- 400s — Home Services
- 500s — Personal Services
- 600s — Personal Appearance and Wellness
- 700s — Recreation and Instruction
- 800s — Transportation and Delivery
Specific exclusions: In addition to citing what professions are eligible for the new tip income tax break, the IRS guidance also noted types of work that do not qualify.
The original eligible workers included the broad category of digital content creators. That’s still in today’s proposed regs under Entertainment and Events, specifically #209 Digital Content Creators.
The wide-ranging content category immediately led to speculation that it would allow makers of adult content to claim the tip income tax break.
Today’s guidance officially put an end to that possibility.
“In addition, the proposed regulations provide that amounts received for prostitution services and pornographic activity are not included in the definition of ‘qualified tips,’” according to the proposed regulations.
In addition, the IRS noted in the document that it will take steps to prevent income from being categorized as tips in order to claim the tax benefit.
“Finally, to prevent reclassification of income as qualified tips, and to prevent abuse of the deduction, the proposed regulations would also provide that a payment is not a qualified tip if the tip recipient has an ownership interest in or is employed by the payor of the tip,” note the regulations.
SSTBs also restricted: The proposed regs also address jobs that are defined as a specified service trade or business area, or SSTB.
These cover occupations in healthcare, legal profession, financial services, accounting, actuarial science, performing arts, consulting, athletics (players and team owners), brokerage and trading fields, and “businesses where the principal asset is the reputation or skill of its employees/owners.”
In addition to being ineligible for the no tax on tips provision, tax law also already restricts or prevents SSTBs from claiming the qualified business income (QBI) deduction and the state and local taxes (SALT) deduction.
Claiming qualified tips: The proposed regulations also elaborate on how a worker can claim the new OBBB tax break for their tip income.
First, a worker must both be in an occupation on the list and receive qualified tips.
And just what is a qualified tip? The proposed regs provide definitions of both qualified and not qualified tips.
Qualified tips must —
- be paid in cash or an equivalent medium, such as check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount in cash, or another form of electronic settlement or mobile payment application (excluding most digital assets) denominated in cash.
- be received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool.
- must be paid voluntarily by the customer and not be subject to negotiation.
Also, notes the IRS, qualified tips do not include some service charges.
Take, for example, a restaurant that imposes an automatic 18 percent service charge for large parties and distributes that amount to waiters, bussers, and kitchen staff. If the charge is added with no option for the customer to disregard or modify it, the amounts distributed to the workers from it are not qualified tips.
Tips tax break effective numbers: Under the OBBB Act, individuals who earn qualified tipped income can deduct up to $25,000 per year of those tips.
This tax deduction is available regardless of whether the tip recipient itemizes or claims the standard deduction.
It’s also available for only four tax years. It’s retroactive for all of 2025, and will run through 2028.
Comments sought, hearing planned: As is federal rule making protocol, the proposed no tax on tips regs issued today must undergo notice-and-comment period.
You can submit your thoughts on the IRS proposed regs electronically via the Federal eRulemaking Portal at Regulations.gov.
The IRS also has planned a public hearing on the regulations on Oct. 23 at 10 a.m. Eastern Time (ET).
After reviewing the comments, both written and at the hearing, the IRS will issue the final regs.
You also might find these items of interest:
- No tax on tips for these workers
- New OBBB tax breaks taking effect in 2025
- IRS tweaks EV tax credit’s Sept. 30 ending date
