Update as of Sept. 3, 2025

A month ahead of schedule, the U.S. Department of the Treasury released its tipping and taxes guidance related to which industries and occupations qualify.

You can view the full list of occupations here.

This list is broken down by major categories, including:

  • Beverage & Food Service
  • Entertainment & Events
  • Hospitality & Guest Services
  • Home Services
  • Personal Services
  • Personal Appearance & Wellness
  • Recreation & Instruction
  • Transportation & Delivery

For each occupation, there’s a Treasury Tipped Occupation Code — or TTOC — a title, a description of the job duties, and several examples.

Based on the current W-2 draft form, employers will have to list the TTOC in new Box 14(b) starting in 2026.

The next round of guidance should include details about the new overtime deduction. So, stay tuned.

Let us know if you have any questions.

Update as of Aug. 26, 2025

The IRS recently released a draft version of the 2026 Form W-2 with new fields related to tipping and taxes, as well as new overtime rules from the One Big Beautiful Bill Act.

The draft form breaks up Box 14 into two separate boxes, 14a and 14b. Box 14a is labeled Other, while 14b is labeled “Treasury tipped occupation code.” The Treasury Department said it will announce which occupations can claim the “no tax on tips” deduction by Oct. 2.

The instructions for Box 14b read, “Employers use this box to report the Treasury Occupation Code for your tipped occupation. Use this code in reporting the deduction for qualified tips on Sch. 1-A (Form 1040).”

For box 12, new codes have been added for tips and overtime pay. The code TP corresponds to “Total amount of qualified tips.” The instructions say to “use this amount in determining the deduction for qualified tips on Sch. 1-A (Form 1040).”

Another code for Box 12 is “TT” for the “Total amount of qualified overtime compensation.” The instructions currently say to “use this amount in determining the deduction for qualified overtime compensation on Sch. 1-A (Form 1040).”

There may be other revisions to various forms before the end of the year, so watch for more information. Let us know if you have any questions.

Tipping and Taxes in the OBBB

The recent passage of the Big Beautiful Bill led to some major changes to the rules related to tipping and taxes.

The bill lets taxpayers deduct up to $25,000 of “qualified tips.” The law applies to tips already earned in 2025 and sunsets in 2028, unless Congress renews it.

Phase-outs start after a taxpayer’s modified adjusted gross income tops $150,000 for single filers or $300,000 for married filing jointly. The reduction is $100 for every $1,000 of MAGI above those levels. That means the write-off disappears entirely at about $400,000 MAGI (single) or $550,000 (MFJ).

Tax-free tips are restricted to those who work “an occupation which customarily and regularly received tips.” However, it doesn’t define what those jobs are individually. IRS guidance on which occupations qualify is due within 90 days of enactment.

Key tax tip reminders

  • Payroll taxes, e.g., Social Security and Medicare, on tips still apply because the bill only touches federal income tax.
  • Payroll systems won’t change until the IRS issues updated guidance.
  • Only tips that are actually reported count toward the deduction. As of right now, we don’t know how this will affect tip tax credits that are currently part of the system.

Other tip questions? Let us know!

 

(Editor’s note: The following information is from the original post published in 2023. With the recent passage of the Big Beautiful Bill, the information is no longer relevant but is provided for historical context.)

As anyone who works in a restaurant, bar, salon, or other service job knows, tips are a big part of the pay.

If that’s true for you, below covers most of what you need to know about tipping and taxes. You can also slog through the IRS’s webpage about tipping if you’re bored or have insomnia.

Tipping and Taxes Tips and Tricks

  • Tips can be cash or noncash. And they can come right from customers, be distributed by your employer, or come from a co-worker through a tip-sharing arrangement. Usually, you have to report cash tips to your employer. (If you get less than $20 a month in tips, you don’t have to report that to your employer. But you do still have to claim it on your taxes.)
  • Noncash tips include items like tickets, passes, or anything else that’s not money and comes from a client or customers. You don’t have to report noncash tips to your employer.
  • Tips can also be direct or indirect. Servers, bartenders, stylists, etc., receive direct tips. Bussers, cooks, barbacks, and the like usually receive indirect tips.
  • If you’re tipped, you gotta keep a daily record. You can use Form 4070A to keep track.
  • If you get any noncash tips, you should keep a record of those, too, including the date and the value. You’ll need to report the value on your tax return.
  • Come tax time, your employer should give you a Form W-2 that includes your reported tips. If you missed any tips, make sure to include those on your return as additional wages. For that, you can use Form 4137. Remember that you’re liable for your share of Social Security and Medicare tax on tips you don’t report to your employer.

What should employers with tipped employees know?

Employers with tipped employees are required to:

  • Keep their employees’ tip reports.
  • Withhold taxes, including income taxes and the employee’s share of Social Security tax and Medicare tax, based upon employees’ wages and reported tip income.
  • Pay the employer share of Social Security and Medicare taxes based on the total wages paid to tipped employees and the reported tip income.
  • Report this information to the IRS on Form 941.
  • Deposit the withheld taxes in accordance with federal tax deposit requirements.