Overview
- The IRS said only voluntary customer tips qualify for the new deduction, excluding automatic service charges and non‑cash perks.
- Proposed rules require qualified tips to be paid in cash or cash‑equivalent, properly reported, and received by workers with valid Social Security numbers.
- Treasury’s preliminary list designates roughly 68–70 eligible tipped occupations under new Treasury Tipped Occupation Codes, while certain professional service businesses are excluded.
- Employers are urged to update payroll systems now to track qualified tips separately on W‑2s; Social Security and Medicare taxes still apply and state income‑tax rules are unchanged.
- The deduction is limited to $25,000 per taxpayer with income phase‑outs, is retroactive to 2025 and available through 2028, and a public hearing on the proposal is scheduled for Oct. 23.