Overview

• Proposed regulations implement an income‑tax deduction of up to $25,000 in qualified tips for tax years 2025 through 2028, retroactive to Jan. 1, with a phaseout beginning above $150,000 of modified AGI.
• Qualifying tips must be voluntary and reported to employers for W‑2 reporting; cash, cards, gift cards, electronic payments and tokens redeemable for cash such as casino chips qualify, while automatic gratuities generally do not.
• Payroll taxes still apply and the deduction is available without itemizing; married filing separately is ineligible and self‑employed filers cannot deduct more than net income from the relevant business.
• Treasury’s occupations list targets jobs that customarily receive tips and excludes specified service trades such as health care, legal, financial services and performing arts.
• Tip pools can qualify when voluntary and reported, and gaming‑industry frameworks like TRDA and GITCA are covered; Treasury opened a comment period and scheduled an Oct. 23 hearing.