IRS – New Qualified Tips AnalysisSeptember 23, 2025

The Treasury Department and the Internal Revenue Service (IRS) have issued a notice of proposed rulemaking (REG-110032-25) providing critical guidance on the new income tax deduction for “qualified tips” under Internal Revenue Code (Code) § 224. This new deduction was enacted as part of the One, Big, Beautiful Bill Act (OBBBA). For tax professionals, understanding the nuances of these proposed regulations is essential for advising clients in tipped occupations. This article provides a technical breakdown of the proposed rules, including the legislative mandate for their issuance, key definitional provisions, the methodology for identifying eligible occupations, and applicability dates.

Justification for Issuance

The OBBBA, enacted on July 4, 2025, introduced Code § 224, creating a new deduction available whether or not a taxpayer itemizes deductions for qualified tips received by individuals. Section 70201(h) of the OBBBA specifically mandated that the Secretary of the Treasury publish a list of occupations that “customarily and regularly received tips on or before December 31, 2024,” within 90 days of the act’s enactment. The proposed regulations fulfill this statutory requirement.

Furthermore, the OBBBA grants the Secretary broad authority to issue regulations necessary to prevent the reclassification of income as qualified tips and to curb potential abuse of the deduction, as authorized by § 224(g). The regulations are also issued under the general authority of § 7805(a), which allows the Secretary to prescribe all needful rules for the enforcement of the Code. These proposed rules aim to provide clarity for taxpayers and practitioners regarding the statutory requirements for claiming the deduction, the definition of “qualified tips,” and the specific occupations that are eligible.

Key Provisions of the Proposed Regulations

The proposed regulations offer detailed guidance on the mechanics and limitations of the § 224 deduction.

Definition of Qualified Tips

Consistent with § 224(d)(1), the proposed regulations define “qualified tips” as cash tips received by an individual in an occupation identified on the forthcoming official list of occupations that customarily and regularly received tips on or before December 31, 2024.

• Cash Tips Defined: The term “cash tips” is broadly defined to include payments via cash, check, credit card, debit card, gift card, and electronic settlement or mobile payment applications denominated in cash. The definition also explicitly includes tangible or intangible tokens that are readily exchangeable for a fixed amount in cash, such as casino chips. It does not, however, include non-cash items like event tickets, meals, or most digital assets that are not exchangeable for a fixed cash amount.
• Voluntary Payments: To be considered a qualified tip, a payment must be voluntary, not subject to negotiation, and determined by the payor, with no consequence for nonpayment. This aligns with long-standing IRS guidance distinguishing tips from service charges, such as Rev. Rul. 2012-18, 2012-26 I.R.B. 1032. The regulations clarify that mandatory amounts, such as automatic gratuities and service charges, are not qualified tips unless the customer is explicitly given the option to disregard or modify the amount without consequence.

Specified Service Trade or Business (SSTB) Limitation

A significant restriction is found in § 224(d)(2)(B), which excludes tips received in the course of a specified service trade or business (SSTB), as defined under § 199A(d)(2).

• The proposed regulations adopt the SSTB definitions from § 1.199A-5(b). The fields include health, law, accounting, performing arts, consulting, and athletics, among others.
• Critically, the regulations clarify that for employees, the determination is based on the employer’s trade or business. If an employee works for an employer whose business is an SSTB, any tips received by that employee are not qualified tips, even if the employee’s specific occupation is on the approved list. For example, a comedian (an entertainer in the performing arts SSTB) who is self-employed would not have qualified tips. However, a pianist employed by a hotel (which is not an SSTB) would have qualified tips, as the determination is made at the employer level.

Other Rules and Limitations

• Deduction Limit: The deduction is limited to a maximum of $25,000 per taxable year, regardless of filing status.
• Income Phase-Out: The deduction is phased out for taxpayers with modified adjusted gross income (MAGI) exceeding $150,000 for single filers and $300,000 for joint filers. The phase-out is applied after the $25,000 annual limitation.
• Trade or Business Limitation for Self-Employed: For self-employed individuals, the deduction cannot exceed the net income from the trade or business in which the tips were received (calculated without regard to the § 224 deduction itself).
• Filing Requirements: To claim the deduction, the taxpayer must include their Social Security Number (SSN) on the return. Taxpayers who are married within the meaning of § 7703 must file a joint return.
• Illegal Activities: The regulations explicitly provide that amounts received for services constituting a felony or misdemeanor under applicable law, as well as amounts from prostitution or pornographic activities, are not qualified tips.
• Tip Reporting Programs: For employees participating in voluntary tip reporting programs like the Tip Rate Determination Agreement (TRDA) or the Gaming Industry Tip Compliance Agreement (GITCA), qualified tips include amounts reported based on the established tip rates, as well as any additional tips reported on Form 4137.

Identification of Occupations and IRS Justification

The centerpiece of the proposed regulations is the “List of Occupations that Receive Tips”. The Treasury and IRS undertook a multi-faceted analysis to develop this list, as a simple definition of “customarily and regularly” does not exist within the Code.

Methodology for Selection

• Defining “Customarily and Regularly”: Lacking a definition in the Code, the IRS looked to dictionary definitions and, notably, to the use of the same phrase in the Fair Labor Standards Act (FLSA). Under the FLSA, the phrase “signifies a frequency which must be greater than occasional, but which may be less than constant” (29 C.F.R. 531.57). The IRS adopted a similar standard, determining that an occupation must have received cash tips more often than occasionally (e.g., not just on annual holidays) during a calendar year on or before December 31, 2024.
• Data Sources: The IRS compiled the list using several sources to ensure comprehensive coverage:
  • IRS Tax Data: Analysis of 2023 Forms W-2 and 4137, which report tip income for employees. The IRS acknowledged this data was under-inclusive because it missed independent contractors who do not receive a W-2 reporting tips.
  • IRS Tip Programs: Data from long-standing voluntary programs like GITCA, which contains detailed information on tipped occupations in the gaming industry.
  • Legislative History: The House Budget Committee report on the OBBBA (H. Rept. 119-106) provided a non-exhaustive list of intended occupations, including restaurant servers, bartenders, rideshare drivers, and hairstylists, which was consulted to supplement IRS data.
  • Survey Data: The Panel Study of Income Dynamics from the University of Michigan, which captures tip data for both employees and self-employed individuals, was also analyzed.
• Tip-Sharing Arrangements: A key interpretative decision by the IRS was to include occupations that receive tips primarily through tip-sharing arrangements, even if they lack direct customer interaction. The IRS based this on the language in § 224(d)(3), which explicitly defines “cash tips” to include amounts received under any tip-sharing arrangement. This interpretation differs from some FLSA case law, which often requires a de minimis level of customer interaction for an employee to be included in a tip pool. The IRS reasoned that the specific statutory language in § 224 warranted a broader inclusion. Dishwashers are cited as an example of an occupation included on the list for this reason.

The Treasury Tipped Occupation Code (TTOC) System

The IRS determined that using the existing Standard Occupation Classification (SOC) system published by the Office of Management and Budget was not feasible. Certain SOC codes were over-inclusive, grouping together occupations that receive tips with those that do not (e.g., “Animal Caretakers” includes both pet caretakers and zookeepers).

To address this, the IRS created a new categorization system specifically for this purpose: the Treasury Tipped Occupation Code (TTOC) system. The final list organizes occupations into broad categories (e.g., Beverage and Food Service, Personal Services) and assigns each specific occupation a three-digit TTOC, a title, a description, and illustrative examples.

Each entry in the TTOC system includes a three-digit code, an occupation title, a description of the services performed, and illustrative examples of specific jobs that fall under that code. The occupations are grouped into eight general categories.

Here is a comprehensive list of the TTOCs and the activities each covers, as detailed in the proposed regulations. Note that there are inconsistencies between the TTOC numbers in the table found in the preamble and those found in the text of the proposed regulations, as detailed below. These inconsistencies will likely be fixed via a correction to the proposed regulations:

100s – Beverage and Food Service

This category covers occupations involved in the preparation and service of food and beverages.

• TTOC 101 – Bartenders: Mixes and serves drinks to patrons, either directly or through waitstaff. This includes roles like barkeep, mixologist, taproom attendant, and sommelier.
• TTOC 102 – Wait Staff: Takes orders and serves food and beverages to patrons at tables in dining establishments. Examples include cocktail waitresses and dining car servers.
• TTOC 103 – Food Servers, Non-restaurant: Serves food to individuals outside of a traditional restaurant setting, such as in hotel rooms (room service), residential care facilities, or cars. Illustrative examples are room service food server, boat hop, and beer cart server.
• TTOC 104 – Dining Room and Cafeteria Attendants and Bartender Helpers: Facilitates food service by cleaning tables, setting tables, replenishing supplies, and assisting patrons with items like water or condiments. Roles include bar back, bar helper, and busser.
• TTOC 105 – Chefs and Cooks: Directs and participates in the preparation, seasoning, and cooking of all types of food. This broad category includes executive chefs, pastry chefs, sous chefs, fast food cooks, private chefs, food truck cooks, and caterers.
• TTOC 106 – Food Preparation Workers: Performs various food preparation duties other than cooking, such as preparing cold foods, slicing meat, or brewing coffee. Examples are salad maker, sandwich maker, and kitchen steward.
• TTOC 107 – Fast Food and Counter Workers: Serves customers at a counter or steam table, taking orders, serving food and beverages, and potentially handling payment. This includes baristas, ice cream servers, and cafeteria servers.
• TTOC 108 – Dishwashers: Cleans dishes, kitchen equipment, and utensils. Examples include dish room workers and silverware cleaners.
• TTOC 109 – Host Staff, Restaurant, Lounge, and Coffee Shop: Welcomes and seats patrons, helping to ensure a quality experience. This includes a maître d’hôtel and dining room host.
• TTOC 110 – Bakers: Mixes and bakes ingredients to produce items like breads, cakes, pies, and pastries. Examples include bread baker, cake baker, and pastry finisher.

200s – Entertainment and Events

This category includes occupations that provide entertainment and support services at events and venues.

• TTOC 201 – Gambling Dealers: Operates various games of chance, such as blackjack, craps, poker, and roulette, by dispensing cards, operating equipment, and managing winnings and losses.
• TTOC 202 – Gambling Change Persons and Booth Cashiers: Exchanges currency for coins, tokens, and chips for patrons in a gambling establishment. This includes slot attendants and mutuel tellers.
• TTOC 203 – Gambling Cage Workers: Conducts financial transactions for patrons at a gambling establishment, including credit applications, check-cashing, and converting chips to currency. This includes casino cashiers and cage cashiers.
• TTOC 204 – Gambling and Sports Book Writers and Runners: Posts wagering information, assists in games like keno and bingo, records wagers, and pays out winnings. Examples include betting runners and bingo workers.
• TTOC 205 – Dancers: Performs dances for an audience, such as a club dancer or dance artist.
• TTOC 206 – Musicians and Singers: Plays one or more musical instruments or sings for an audience. Examples include an instrumentalist, accompanist, or lounge singer.
• TTOC 207 – Disc Jockeys, Except Radio: Plays prerecorded music for live audiences at events like clubs, parties, or weddings. This includes a deejay or club DJ.
• TTOC 208 – Entertainers and Performers: Entertains audiences through artistic expression, including comedians, clowns, magicians, and street performers.
• TTOC 209 – Digital Content Creators: Produces and publishes original entertainment and personality-driven content on digital platforms. Examples include streamers, online video creators, social media influencers, and podcasters.
• TTOC 210 – Ushers, Lobby Attendants, and Ticket Takers: Assists patrons at entertainment events by collecting tickets, helping them find seats, and locating facilities.
• TTOC 211 – Locker Room, Coatroom, and Dressing Room Attendants: Provides personal items to patrons in locker rooms, dressing rooms, or coatrooms, such as a coat checker or washroom attendant.

300s – Hospitality and Guest Services

This category covers roles focused on assisting guests at hotels, resorts, and similar establishments.

• TTOC 301 – Baggage Porters and Bellhops: Handles baggage for travelers at terminals or for guests at hotels. This includes hotel baggage handlers and curbside airport check-in assistants.
• TTOC 302 – Concierges: Assists patrons at hotels or apartment buildings with personal services like arranging transportation, making reservations, and handling guest requests.
• TTOC 303 – Hotel, Motel, and Resort Desk Clerks: Accommodates patrons by registering them, assigning rooms, issuing keys, and handling payments. This includes front desk clerks and registration clerks.
• TTOC 304 – Maids and Housekeeping Cleaners: Performs light cleaning duties to maintain commercial establishments like hotels in a clean and orderly manner, including making beds and cleaning rooms. This includes hotel maids and housekeeping staff.

400s – Home Services

This category includes a wide range of occupations that provide maintenance, repair, and cleaning services for private homes.

• TTOC 401 – Home Maintenance and Repair Workers: Performs work to repair machines, mechanical equipment, or the structure of a building. This includes a handyman, roofer, window repairer, and house painter.
• TTOC 402 – Home Landscaping and Groundskeeping Workers: Landscapes or maintains property grounds using hand or power tools. This includes lawn mowers, gardeners, and tree trimmers.
• TTOC 403 – Home Electricians: Installs, maintains, and repairs electrical wiring, equipment, and fixtures in a home.
• TTOC 404 – Home Plumbers: Assembles, installs, alters, and repairs pipelines or pipe systems that carry water, steam, or other substances in a home.
• TTOC 405 – Home Heating and Air Conditioning Mechanics and Installers: Installs or repairs heating, central air conditioning, or refrigeration systems in a home. This includes an air conditioning repairer and chimney sweep.
• TTOC 406 – Home Appliance Installers and Repairers: Repairs, adjusts, or installs household appliances like refrigerators, washing machines, and dryers.
• TTOC 407 – Home Cleaning Service Workers: Performs light cleaning duties to maintain private households. Examples include a house cleaner, pool cleaner, and window washer.
• TTOC 408 – Locksmiths: Repairs and opens locks, makes keys, and installs or repairs safes.
• TTOC 409 – Roadside Assistance Workers: Provides on-road assistance to drivers, including tow truck drivers, car battery technicians, and tire repairers.

500s – Personal Services

This category covers a variety of roles providing direct, personalized services to individuals and for events or portraits, such as a wedding photographer or headshot photographer.

• TTOC 501 – Personal Care and Service Workers: This occupation involves providing personalized assistance to individuals with illnesses or disabilities who need help with personal care and daily living activities.
• TTOC 502 – Private Event Planners: Individuals in this occupation coordinate the activities of staff or clients to make arrangements for private events.
• TTOC 503 – Private Event and Portrait Photographers: This role involves photographing people, landscapes, or other subjects.
• TTOC 504 – Private Event Videographers: Operates a video or film camera to record scenes of private events, such as a wedding videographer.
• TTOC 505 – Event Officiants: Leads and facilitates ceremonies for life events such as weddings or funerals. This includes a wedding officiant, funeral celebrant, or clergy.
• TTOC 506 – Pet Caretakers: Provides care to promote the well-being of pets, including pet groomers, pet sitters, pet walkers, and pet trainers.
• TTOC 507 – Tutors: Instructs individual students or small groups in academic subjects to supplement formal instruction. Examples include a reading tutor, math tutor, or language tutor.
• TTOC 508 – Nannies and Babysitters: Attends to children in businesses or private homes, performing tasks like dressing, feeding, bathing, and supervising play. This includes an au pair and a child sitter.

600s – Personal Appearance and Wellness

This category is focused on services that enhance an individual’s appearance and well-being.

• TTOC 601 – Skincare Specialists: Provides skincare treatments to the face and body. This includes a facialist, electrologist, and spa esthetician.
• TTOC 602 – Massage Therapists: Performs therapeutic massages of soft tissues and joints. This includes a masseuse, deep tissue massage therapist, and sports massage therapist.
• TTOC 603 – Barbers, Hairdressers, Hairstylists, and Cosmetologists: Provides beauty or barbering services such as cutting, coloring, and styling hair. This includes a wig stylist, beautician, and hair colorist.
• TTOC 604 – Shampooers: Shampoos and rinses customers’ hair. This includes a scalp treatment specialist and shampoo assistant.
• TTOC 605 – Manicurists and Pedicurists: Cleans, shapes, and may polish or decorate customers’ fingernails and toenails. This includes a nail technician and nail painter.
• TTOC 606 – Eyebrow Threading and Waxing Technicians: Enhances and maintains clients’ eyebrows using techniques such as threading, waxing, or tweezing. (The preamble lists this under TTOC 606 while its data table entry in the proposed regulations list it as TTOC 611).
• TTOC 607 – Makeup Artists: Designs and applies makeup looks, such as for a wedding or party. (The preamble lists this under TTOC 607 while the regulations’ data table entry is for TTOC 606).
• TTOC 608 – Exercise Trainers and Group Fitness Instructors: Instructs individuals or groups in exercise activities for personal fitness. This includes an aerobics trainer, yoga instructor, and personal trainer. (The preamble lists this under TTOC 608 while its data table entry is for TTOC 607).
• TTOC 609 – Tattoo Artists and Piercers: Designs and executes tattoos or creates openings in the body for jewelry. (The document incorrectly lists this under TTOC 609 while the data table entry in the proposed regulations has it as TTOC 608).
• TTOC 610 – Tailors: Designs, makes, alters, repairs, or fits garments. This includes a tailor, seamstress, and clothing alterations worker. (The preamble lists this under TTOC 610 while the regulation’s data table entry lists it as TTOC 609).
• TTOC 611 – Shoe and Leather Workers and Repairers: Constructs, decorates, or repairs leather products like shoes and luggage. This includes a cobbler and shoe shiner. (The preamble lists this under TTOC 611 while the data table entry in the regulations lists it as TTOC 610).
• TTOC 611 (as listed in Table A) – Eyebrow Threading and Waxing Technicians: This occupation is listed in the regulations’ data table under TTOC 611, but the detailed description list in the preamble places it under TTOC 606. The activities include enhancing and maintaining eyebrows.

700s – Recreation and Instruction

This category covers roles providing guidance, instruction, and support for recreational activities and tours.

• TTOC 701 – Golf Caddies: Assists golfers by carrying their bags, managing clubs, and offering strategic advice on the course.
• TTOC 702 – Self-Enrichment Teachers: Instructs individuals or groups for self-enrichment purposes, such as a knitting instructor, piano teacher, or art teacher.
• TTOC 703 – Recreational and Tour Pilots: Pilots aircraft, helicopters, or other vehicles like hot air balloons for recreational or touring purposes. (The preamble shows this in TTOC 703, but the regulations swap it with Sports and Recreational Instructors in TTOC 706)
• TTOC 704 – Tour Guides: Guides individuals or groups on sightseeing tours or through places of interest like museums or art galleries.
• TTOC 705 – Travel Guides: Plans, organizes, and conducts long-distance travel and tours for individuals and groups. This includes a cruise director and river expedition guide.
• TTOC 706 – Sports and Recreation Instructors: Teaches or instructs individuals or groups in recreational activities, such as a diving instructor, ski instructor, or surfing instructor.

800s – Transportation and Delivery

This category includes occupations focused on transporting passengers and delivering goods.

• TTOC 801 – Parking and Valet Attendants: Parks vehicles or issues tickets for customers in a parking lot or garage. This includes a parking garage attendant and valet parker.
• TTOC 802 – Taxi and Rideshare Drivers and Chauffeurs: Drives a motor vehicle to transport passengers on a planned or unplanned basis. This includes a cab driver and personal driver.
• TTOC 803 – Shuttle Drivers: Drives a motor vehicle to transport passengers on a planned route and scheduled basis, such as an airport shuttle or hotel shuttle driver.
• TTOC 804 – Goods Delivery People: Drives a vehicle to deliver goods like food, furniture, or packages. This includes a pizza delivery driver, grocery delivery driver, and bicycle courier.
• TTOC 805 – Personal Vehicle and Equipment Cleaners: Washes or cleans personal vehicles and equipment. This includes a car wash attendant, auto detailer, and boat waxer.
• TTOC 806 – Private and Charter Bus Drivers: Drives a bus or motor coach for charters or private carriage. This includes a motor coach bus driver and tour bus driver.
• TTOC 807 – Water Taxi Operators and Charter Boat Workers: Operates water taxis or provides services to passengers on private charter boats.
• TTOC 808 – Rickshaw, Pedicab, and Carriage Drivers: Operates a rickshaw, pedicab, or carriage to transport passengers.
• TTOC 809 – Home Movers: Manually moves furniture, boxes, and other materials to or from a home. This includes a furniture mover, packer, and piano mover.

Effective Date and Reliance

The proposed regulations are slated to apply to taxable years beginning after December 31, 2024. The deduction itself is temporary and is not allowed for any taxable year beginning after December 31, 2028, per § 224(h).

Importantly for planning purposes, the regulations state that taxpayers may rely on these proposed regulations for taxable years beginning after December 31, 2024, and on or before the date final regulations are published, provided they follow the proposed rules in their entirety and in a consistent manner. This provides a crucial safe harbor for taxpayers and practitioners as they prepare for the 2025 tax year.

Source: Ed Zollars, CPA, Sept. 22, 2025, currentfederaltaxdevelopments.com