Dive Brief:

• Professions that will receive tax deductions on tipped wages include workers within the food and beverage service, entertainment and events, hospitality and guest services, home and personal services, personal appearance and wellness, recreation and instruction, and transportation and delivery industries, according to the Internal Revenue Services. 
• The final regulations released just days before the April 15 tax deadline for e aim to provide clarity to accountants and tax preparers about the various industries and professions that will be affected by the “no tax on tips” provision included in the One Big Beautiful Bill Act tax and spending package that passed in July. 
• Industries and businesses that will need to report tips for eligible deductions on federal tax filings for employees and contracted workers include restaurants, hotels, casinos, entertainment venues, cleaning companies, home repair and services companies, cleaning companies, nail, hair, and spa businesses, golf courses, taxi and rideshare companies, and gas stations. 

Dive Insight:

This is where the insight goes.

The “no tax on tips” provision included in the OBBBA aimed to provide tax relief to workers — fulfilling a campaign promise by President Donald Trump. But the law also provides complex challenges to tax preparers, employers and employees that are trying to navigate what may qualify for the tax deductions. 

The new provision has ushered in one of the most significant payroll reporting changes in more than a decade, Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals, previously told CFO Dive. 

The IRS finalized the new rule that aims to provide some clarity to what tips qualify following a public hearing and comment period. According to the IRS, workers can claim deductions for tips paid in cash or other payment methods such as checks, credit cards, debit cards, gift cards, or mobile payment apps when working for certain qualified professions. Those professions include:

Beverage and food service workers – restaurant and bar staff such as wait staff; bartenders; chefs; cooks; food prep workers; dishwashers; fast food counter workers; bakers and host staff. 

Entertainment and events — casino dealers; cashiers; gambling cage workers; dancers; musicians, DJs and performers; digital content creators; ushers; and dressing room attendants. 

Hospitality and guest services — bellhops; concierges; hotel and motel guest clerks; and housekeeping workers. 

Home services — maintenance and repair workers; landscapers; electricians; plumbers; heating and air conditioning mechanics; cleaners; locksmiths; and roadside assistance workers.

Personal services — event planners, photographers, videographers, and officiants for private events; animal caretakers; tutors; nannies and babysitters; visual artists; and floral designers. 

Personal appearance and wellness — skincare specialists; massage therapists; hairdressers, barbers, and cosmetologists; shampooers; manicure and pedicurists; eyebrow and eyelash technicians; makeup artists; fitness trainers and instructors; tattoo artists and piercers; tailors; and shoe and leather repair workers. 

Recreation and instruction — golf caddies; self-enrichment teachers; recreational and tour pilots; tour and travel guides; and sports and recreation instructors. 

Transportation and delivery — parking and valet attendants; taxi and rideshare drivers and chauffeurs; shuttle drivers; goods delivery workers; personal vehicle and equipment cleaners; private and charter bus drivers; water taxi and charter boat drivers and workers; carriage drivers; home movers; and gas pump attendants. 

Workers need to receive the tips from the customer or through mandatory or voluntary tip-sharing agreements, such as a tip pool — and the tips must be paid voluntarily by the customer. Service charges are not considered qualified tips, unless the customer has an option to disregard or modify that charge, the IRS stated. 

Employers need to include qualified tips on W-2, 1099-NEC, 1099-MISC, and 10999-K forms. Workers can also report qualified tips on Form 4137, the IRS stated. But the law limits the size of the deduction for self-employed individuals based on the size of their net income — with eligible deductions maxing out at $25,000 for the tax years 2025 through 2028.

The IRS had previously stated there would be no changes to W-2 forms during the 2025 tax year to give the agency, businesses, and tax professionals time to implement changes. It also gave employers penalty relief for providing the correct information on qualified tips this year.