The Internal Revenue Service’s final rule on Occupations That Customarily and Regularly Receive Tips; Definition of Qualified Tips was published on April 13, 2026, in the Federal Register. This rule implements Section 70201 of HR 1, which establishes a tax deduction of up to $25,000 for qualified tips. The final rule takes effect on June 12, 2026.

Qualified tips are defined as cash tips received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary of Treasury. To be considered a “qualified tip,” the amount must: (a) be paid voluntarily without any consequence in the event of nonpayment; (b) not be the subject of negotiation; and (c) be determined by the payor. Cash tips may include, but are not limited to, payments by cash, check, credit card, debit card, or gift card. Cash tips also can be received through a tip sharing arrangement. Cash tips do not include event tickets, meals, services, digital assets, or other assets that are not exchangeable for a fixed amount in cash.

The rule designates 71 occupations that customarily and regularly received tips on or before December 31, 2024, which include dining room attendants, personal care and service workers, hairdressers, and hairstylists. In response to a comment requesting that senior living and resident care service providers be included in the list of occupations that receive tips, the final rule clarifies that resident care is also included in the category of personal care and service workers. Accordingly, the description of personal care and service workers has been revised in part to read “[w]ork is performed in various settings depending on the needs of the care recipient and may include locations such as their home, place of work, out in the community, at a daytime nonresidential facility or a residential facility.”

The final rule also adds an anti-abuse provision that would find that an amount is not a qualified tip if, based on all relevant facts and circumstances, such amount represents a recharacterization of wages or payments for goods or services as tips for purposes of claiming the deduction. An example would be where there is a significant shift in historical tipping or payment practices between the payor and the tip recipient.

The $25,000 deduction amount is reduced by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return). In the case of qualified tips received by an individual engaged in their own trade or business (not as an employee), the deduction is generally limited to the individual’s net income.

The “no tax on tips” deduction is in effect for the 2025 tax year and is set to expire after the 2028 tax year.