Yesterday, the Treasury Department and IRS issued proposed regulations identifying the occupations that customarily and regularly received tips before 2025, and therefore may be eligible for the deduction. The proposed regulations also address the definition of “qualified tips” and other requirements taxpayers must comply with to claim the deduction.
The “No Tax on Tips” provision, enacted with OBBBA, allows employees and self-employed individuals to deduct up to $25,000 of qualified tips they received in a year, per return. Eligible taxpayers may claim the deduction on their 2025 tax return that they file next year.
The deduction for qualified tips is available to eligible taxpayers who itemize their deductions, as well as those who do not itemize and take the standard deduction. The deduction phases out for taxpayers with incomes above $150,000 (or $300,000 in the case of a joint return).