WASHINGTON – The Treasury Department, in coordination with the IRS, has released proposed regulations clarifying the “No Tax on Tips” deduction.
These rules outline the occupations that traditionally received tips before 2025, specify what qualifies as “eligible tips,” and detail the compliance steps taxpayers must follow to benefit from the deduction.
Treasury Secretary Scott Bessent emphasized the importance of tips in American households, recalling his own early work experience. “I started working as a busboy at just nine years old, relying heavily on tips. Millions of Americans today still depend on tips to cover basic expenses like food, rent, and family needs,” said Bessent. “With the President’s ‘No Tax on Tips’ initiative, the Treasury is committed to boosting take-home pay and advancing Parallel Prosperity, ensuring both Main Street and Wall Street grow together.”
Under the new provision, enacted through OBBBA, employees and self-employed workers may deduct up to $25,000 in qualified tips per year. Taxpayers can claim the deduction on their 2025 returns, offering relief to service industry professionals and others who rely on gratuities.
The proposed regulations further clarify that the deduction is available to both itemizers and those using the standard deduction. However, it phases out for higher-income taxpayers earning above $150,000 (or $300,000 for joint filers). By issuing these regulations, the Treasury and IRS aim to provide certainty and fairness in implementing this landmark tax policy.