Bulletin No. 2026–18

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2026–18

April 27, 2026

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE

Announcement 2026-9, page 881.

The Office of Professional Responsibility (OPR) announces

recent disciplinary sanctions imposed on attorneys, certified public accountants, enrolled agents, enrolled actuaries,

enrolled retirement plan agents, and appraisers. The OPR also

announces when certain unenrolled, unlicensed tax return

preparers (individuals who are not enrolled to practice before

the Internal Revenue Service (IRS)) and are not licensed as

attorneys or certified public accountants) have been disciplined. Licensed or enrolled practitioners are subject to the

regulations governing practice before the IRS, which are set

out in Title 31, Code of Federal Regulations (C.F.R.), Subtitle

A, Part 10, and which are released as Treasury Department

Circular No. 230. The regulations prescribe the duties and

restrictions relating to such practice and prescribe the disciplinary sanctions for violating the regulations. Unenrolled/

unlicensed return preparers who choose to participate in the

IRS’s voluntary Annual Filing Season Program (AFSP) are subject to the guidance in Revenue Procedure 2014-42, which

governs a preparer’s eligibility to represent taxpayers before

the IRS in examinations of tax returns the preparer both prepared for the taxpayer and signed as the preparer. Additionally, unenrolled/unlicensed return preparers who participate

in the AFSP agree to be subject to the duties and restrictions

in Circular 230, including the restrictions on incompetence

or disreputable conduct.

EMPLOYEE PLANS

Notice 2026-26, page 878.

This notice sets forth updates on the corporate bond monthly

yield curve, the corresponding spot segment rates for March

Finding Lists begin on page ii.

2026 used under § 417(e)(3)(D), the 24-month average segment rates applicable for April 2026, and the 30-year Treasury rates, as reflected by the application of § 430(h)(2)(C)

(iv).

EMPLOYEE TAX

TD-10044, page 840.

Public Law 119-21, commonly known as the One, Big, Beautiful Bill Act (OBBBA) adds new section 224 to the Internal

Revenue Code, which provides a deduction for “qualified tips”

that are reported on certain IRS returns and forms. The statute requires that the Secretary of the Treasury publish a list of

occupations that customarily and regularly received tips on

or before December 31, 2025, and establish other requirements concerning qualified tips. These final regulations identify occupations that customarily and regularly received tips

on or before December 31, 2024, define “qualified tips,”

and provide guidance on other requirements of section 224.

TD10044. Published April 13, 2026.

EXCISE TAX

REG-114499-25, page 883.

Section 4475 imposes a one percent tax on remittance

transfers made after December 31, 2025, for which the

sender provides cash, a money order, a cashier’s check, or

other similar physical instrument to the remittance transfer

provider. This Notice of Proposed Rulemaking contains proposed rules relating to the imposition and calculation of that

excise tax.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

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internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

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procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

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To the extent practicable, pertinent cross references to these

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included in this part are Bank Secrecy Act Administrative

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Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

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The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

April 27, 2026 

Bulletin No. 2026–18

Part I

26 CFR 1.224-1

TD 10044

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

Occupations that

Customarily and Regularly

Received Tips; Definition of

Qualified Tips

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final rule.

SUMMARY: This document contains

final regulations that identify occupations

that customarily and regularly received

tips on or before December 31, 2024,

and provide a definition of qualified tips

for purposes of the income tax deduction

for qualified tips. These regulations affect

individuals who receive tips as part of

their occupation.

DATES: Effective date: These final regulations are effective on June 12, 2026.

Applicability date: For date of applicability, see § 1.224-1(j).

FOR FURTHER INFORMATION

CONTACT: Stephanie Caden or Andrew

Holubeck at (202) 317-4774.

SUPPLEMENTARY INFORMATION:

Authority

These final regulations contain amendments to the Income Tax Regulations (26

CFR part 1) under section 224 of the Internal Revenue Code (Code) related to the

deduction for qualified tips. These final

regulations are issued under the authority

conferred by section 70201(h) of Public

Law 119-21, 139 Stat. 72 (July 4, 2025),

commonly known as the One, Big, Beautiful Bill Act (OBBBA), which requires that,

not later than 90 days after the date of the

enactment of the OBBBA, the Secretary

of the Treasury or the Secretary’s delegate

(Secretary) publish a list of occupations that

customarily and regularly received tips on

or before December 31, 2024, for purposes

of section 224(d)(1) of the Code. The regulations are also issued under the authority

in section 224(d)(2)(C), which provides that

“qualified tips” do not include any amount

received by an individual unless such other

requirements as may be established by the

Secretary in regulations or other guidance

are satisfied, and section 224(g) of the

Code, which instructs the Secretary to prescribe such regulations or other guidance as

may be necessary to prevent reclassification

of income as qualified tips, including regulations or other guidance to prevent abuse

of the deduction allowed by section 224.

The final regulations are also issued under

the authority of section 7805(a) of the Code,

which authorizes the Secretary to prescribe

all needful rules and regulations for the

enforcement of the Code, including all rules

and regulations as may be necessary by reason of any alteration of law in relation to

Internal Revenue.

Background

This document contains amendments

to 26 CFR part 1 under section 224 of

the Code relating to the deduction from

income for qualified tips.

Under section 61(a) of the Code,

amounts received by individuals as tips

are included in gross income and subject to income tax. Treasury regulations

under section 61 provide that “[w]ages,

salaries...[and] tips... are income to the

recipients unless excluded by law.” See §

1.61-2(a).1

Section 63(a) of the Code defines taxable income for taxpayers who itemize

their deductions as gross income minus

allowable deductions (other than the standard deduction). Section 63(b) provides

that, in the case of an individual who does

not elect to itemize deductions for the taxable year, taxable income means adjusted

gross income reduced by the standard

deduction and certain other enumerated

deductions.

Section 70201(a) of the OBBBA added

new section 224 to the Code providing an

income tax deduction for “qualified tips”

that are received during the taxable year

by individuals in an occupation that customarily and regularly received tips on

or before December 31, 2024. Section

70201(b) of the OBBBA added the deduction provided by section 224 to the list

of deductions used to determine taxable

income in section 63(b). Specifically, section 224(a) provides for a deduction in an

amount equal to the qualified tips received

by an individual in a taxable year that are

included on statements2 furnished to the

individual pursuant to section 6041(d)(3),

section 6041A(e)(3), section 6050W(f)

(2), or section 6051(a)(18) of the Code,

or are reported by the taxpayer on Form

4137, Social Security and Medicare Tax

on Unreported Tip Income (or successor).

Section 224(b)(1) limits this deduction to

an amount not to exceed $25,000 in a taxable year. Section 224(b)(2) further limits

the amount of the deduction based on a taxpayer’s modified adjusted gross income,

which is a taxpayer’s adjusted gross

income for the taxable year increased by

any amount excluded from gross income

under section 911, section 931, or section

933 of the Code. The deduction phases out

for taxpayers with modified adjusted gross

income over $150,000 ($300,000 for joint

filers).

Section 224(c) provides that, in the case

of qualified tips received by an individual

1

Under section 3121(q), tips are also considered wages for Federal Insurance Contributions Act (FICA) purposes. However, the deduction under section 224 does not apply for FICA purposes

and is not taken into account in determining wages subject to FICA tax. Similarly, the deduction under section 224 does not apply for Self-Employment Contributions Act (SECA) purposes

and is not taken into account for purposes of determining net earnings subject to SECA tax.

2

The House Budget Committee report on the OBBBA, H. Rept. 119-106, at 1503 (2025), specifies that the qualified tip amounts included on reporting statements (for example, Form 1099)

must be separately accounted for on the statements.

April 27, 2026

840

Bulletin No. 2026–18

during any taxable year in the course of

a trade or business (other than the trade

or business of performing services as an

employee) of such individual, such qualified tips are taken into account under section 224(a) only to the extent that the gross

income for the taxpayer from such trade or

business for such taxable year (including

such qualified tips) exceeds the sum of the

deductions allocable to the trade or business

in which such qualified tips are received by

the individual for such taxable year.

Section 224(d)(1) defines “qualified

tips” 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. Section 224(d)(2) further

requires that qualified tips not include any

amount received by an individual unless

the amount:

• Is paid voluntarily without any consequence in the event of nonpayment, is

not the subject of negotiation, and is

determined by the payor;

• Is not received in the course of a trade

or business that is a specified service

trade or business as defined in section

199A(d)(2) of the Code; and

• Satisfies such other requirements as

may be established by the Secretary

in regulations or other guidance.

Section 224(d)(2) further provides

that, for purposes of determining whether

amounts are received in the course of a

trade or business that is a specified service trade or business as defined in section

199A(d)(2), in the case of an individual

receiving tips in the trade or business of

performing services as an employee, such

individual is treated as receiving tips in

the course of a trade or business which

is a specified service trade or business if

the trade or business of the employer is a

specified service trade or business.

Section 224(d)(3) provides that for purposes of section 224(d)(1), the term “cash

tips” includes tips received from customers that are paid in cash or charged and,

in the case of an employee, tips received

under any tip-sharing arrangement.

Section 224(e) provides that no deduction is allowed under section 224 unless

the taxpayer includes on the return of

tax for the taxable year such individual’s

Social Security number (SSN) as defined

in section 24(h)(7) of the Code.

Bulletin No. 2026–18

Section 224(f) provides that if the taxpayer is a married individual (within the

meaning of section 7703 of the Code), section 224 applies only if the taxpayer and

the taxpayer’s spouse file a joint return for

the taxable year. That is, the deduction is

not available for a taxpayer who is married and files separately.

Section 224(h) provides that no deduction is allowed under section 224 for any

taxable year beginning after December 31,

2028.

Section 70201(h) of the OBBBA

instructs the Secretary to publish a list of

occupations that customarily and regularly

received tips on or before December 31,

2024, (“List of Occupations that Receive

Tips”) for purposes of section 224(d)(1)

no later than 90 days after the date the

OBBBA was enacted (July 4, 2025).

The Council of Economic Advisors

(CEA) released a report in June 2025,

entitled “The One Big Beautiful Bill: Legislation for Historic Prosperity and Deficit

Reduction,” that estimates the economic

effects and fiscal impacts of OBBBA. In

this report CEA estimates that the no tax

on tips provision of OBBBA will increase

average take-home pay for tipped workers

by $1,300 per year. CEA also estimates

that the provisions for no tax on overtime,

no tax on tips, and senior tax relief will

boost Gross Domestic Product by 0.3 to

0.4 percent while they are in effect and the

growth that they generate will yield $54 to

$73 billion in higher revenue to offset the

direct revenue losses attributable to these

provisions.

A notice of proposed rulemaking and

a notice of public hearing (REG-11003225) were published in the Federal Register (90 FR 45340) on September 22,

2025, proposing regulations under section

224 that identify occupations that customarily and regularly received tips on

or before December 31, 2024, and that

provide a definition of “qualified tips” for

purposes of the income tax deduction for

qualified tips under section 224. A public

hearing was held telephonically on October 23, 2025, and comments responding

to the notice of proposed rulemaking were

received.

On November 5, 2025, the Treasury

Department and the IRS released Notice

2025-62, providing penalty relief for certain 2025 information reporting related

841

to the section 224 deduction for qualified

tips. In addition, Notice 2025-69, released

on November 21, 2025, provides guidance regarding how individuals satisfy the

requirements for the section 224 deduction

for qualified tips received in 2025. Notice

2025-69 also provides transition relief for

taxpayers regarding the requirement that

qualified tips must not be received in the

course of a specified service trade or business.

Summary of Comments and

Explanation of Revisions

This Summary of Comments and

Explanation of Revisions summarizes

the proposed regulations, all the substantive comments submitted in response to

the proposed regulations, and revisions

adopted by these final regulations. The

Treasury Department and the IRS received

322 written comments in response to the

proposed regulations. The comments are

available for public inspection at https://

www.regulations.gov or upon request.

After full consideration of the comments

received, these final regulations adopt

the proposed regulations with modifications in response to such comments as

described in this Summary of Comments

and Explanation of Revisions.

Many of the comments received were

unrelated to tax law or otherwise outside

the scope of the proposed regulations.

Comments expressing general approval

or disapproval of section 224 or the

OBBBA, recommending statutory revisions, and addressing issues that are outside the scope of this rulemaking (such as

comments relating to IRS forms, reporting procedures, and enforcement) are generally not addressed in this Summary of

Comments and Explanation of Revisions

section or adopted in these final regulations. Guidance on claiming the deduction

for 2025 was provided in Notice 2025-69,

and additional guidance on information

reporting and claiming the deduction in

subsequent years will also be provided in

the instructions to the relevant forms.

Some commenters requested a public

hearing or requested to speak at the public hearing, which was held telephonically

on October 23, 2025. Other commenters requested that the comment period

be extended for at least another 30 days.

April 27, 2026

To ensure that these final regulations are

issued in time to provide guidance to taxpayers filing their 2025 income tax returns,

the Treasury Department and the IRS did

not extend the comment period, and the

comment period for the proposed regulations ended on October 22, 2025; however, the Treasury Department and the IRS

considered all comments received, including comments submitted after the close

of the comment period that were received

up to the point in the rulemaking process at which revisions to the regulatory

text could no longer practicably be made.

Comments received after that point could

not be fully evaluated or incorporated due

to the advanced stage of the drafting process. In addition to making modifications

in response to the comments received, the

final regulations also include non-substantive grammatical or stylistic changes to

the proposed regulations.

1. Comments on the Methodology Used

to Construct the List of Occupations that

Receive Tips

Table 1 in § 1.224-1(f) of the proposed

regulations contains the proposed list of

occupations that customarily and regularly

received tips (List of Occupations that

Receive Tips) on or before December 31,

2024, that section 70201(h) of the OBBBA

instructed the Secretary to provide. The

Treasury Department and the IRS compiled the proposed List of Occupations

that Receive Tips based on a review of IRS

data, legislative history, and survey data

regarding tipped occupations and the presence of certain factors demonstrating that

those occupations customarily and regularly received tips. Because the Code does

not define the phrase “customarily and regularly,” the Treasury Department and the

IRS looked to dictionary definitions and

other statutory provisions, including the

provisions of the Fair Labor Standards Act

(FLSA), for guidance.

With these parameters in mind,

the Treasury Department and the IRS

reviewed data collected from 2023 Forms

W-2, Wage and Tax Statement,3 that

reported tips in box 7 on the form (Social

Security tips); Forms 4137 that reported

tips on line 4; and corresponding income

tax returns (Forms 1040). The Treasury

Department and the IRS identified occupations listed on the income tax returns (as

reported on page 2 of Form 1040 next to

the taxpayer’s signature) described in the

prior sentence as having customarily and

regularly received tips based on the percentage of taxpayers who reported at least

$100 in annual tip income within a given

occupation as reported on Form 1040.

To account for limitations in this data,

including the fact that the data pool consisted only of individuals working as

employees and relied on self-reported and

non-standardized occupation descriptions,

the Treasury Department and the IRS also

evaluated occupations identified in the

Gaming Industry Tip Compliance Agreement (GITCA) program, a voluntary tip

reporting program for the gaming industry

run by the IRS, and other similar IRS tip

reporting programs. The Treasury Department and the IRS also consulted the House

Budget Committee report on the OBBBA,

H. Rept. 119-106, at 1502 (2025), for

additional information regarding occupations that traditionally and customarily

received tips on or before December 31,

2024. Finally, the Treasury Department

and the IRS analyzed survey data from the

Panel Study of Income Dynamics (PSID)

that included information on occupations

and tip income of both employees and

self-employed individuals. The PSID is

a nationally representative survey conducted by the University of Michigan.

In organizing the proposed List of

Occupations that Receive Tips, the Treasury Department and the IRS created a

new categorization system based on the

2018 Standard Occupation Classification

(SOC Code) system, called the Treasury

Tipped Occupation Code (TTOC) system. The SOC Code system is a Federal

statistical standard used by Federal agencies to classify workers into occupational

categories for the purpose of collecting,

calculating, or disseminating data. It is

published by the Executive Office of the

President, Office of Management and

Budget (OMB).

Many commenters addressed the methodology used to create the proposed List

of Occupations that Receive Tips. One

commenter suggested that the IRS review

public comments submitted in response

to the Bureau of Labor Statistics’ Notice

of solicitation of comments to revise the

SOC for 2028 (BLS-2024-0001), published in the Federal Register on June

12, 2024 (89 FR 49911), when considering other occupations to add to the list.

Another commenter suggested that the

primary source used to create the list,

occupations reported on an income tax

return, does not reflect any historical or

traditional information about tipped occupations. One commenter noted that many

of the occupations on the list, especially

those that do not have regular interaction

with the public like cooks, dishwashers,

and prep cooks, are not historically known

to receive tips.

One commenter suggested that the

Treasury Department and the IRS narrow

the list by focusing on the frequency or

prevalence of tip income. The commenter

noted that the definitions of customarily

and regularly discussed in the proposed

regulations were a “logical starting point,”

but questioned whether these definitions

were applied in the methodology beyond

excluding workers reporting less than

$100 in tips per year. The commenter questioned why a $100 annual threshold was

selected instead of a $30/month threshold,

which is used in the FLSA context. One

commenter argued that the proposed standard of “more often than occasionally”

conflicted with the $100 annual threshold. Several commenters noted that the

proposed regulations do not explain how

the additional sources, outside of income

tax returns, were used to add occupations

to the list and that the addition of certain

occupations is not supported by data. Two

commenters requested more transparency

as to how the list was created, including

providing transparent categorization standards, written job descriptions, and stated

evidence thresholds for inclusion.

Finally, a few commenters noted

that eligibility in a particular occupation

should be based on the nature and sub-

Section 224(d)(1) specifies that the occupation must have customarily and regularly received tips on or before December 31, 2024. The Treasury Department and the IRS reviewed data for

the 2023 tax year because that was the most recent year for which comprehensive income tax return data was available. The Treasury Department and the IRS compared the 2023 tax year

data to similar data for 2017-2022. Because 2023 data was similar to prior year data, the Treasury Department and the IRS reviewed preliminary data for the 2024 tax year and anticipated

that final 2024 data would be substantially similar to 2023 data.

3

April 27, 2026

842

Bulletin No. 2026–18

stance of the services provided in the

occupation, rather than the context or

industry in which they are provided and

that the list should be revised to focus

more on the nature of occupations rather

than on the industry or type of service or

product provided.

One commenter stated that the occupations designated by the Treasury Department and the IRS as eligible for no taxes

on tips appropriately captured traditional

tipped occupations and requested that

none of these occupations be cut from

the final rule. Another commenter noted

that the proposed List of Occupations

that Receive Tips accurately reflects those

intended by Congress to receive the tax

deduction.

Section 70201(h) of the OBBBA

requires the Treasury Department and the

IRS to publish a list of occupations that

customarily and regularly received tips

on or before December 31, 2024. This

provision did not dictate a specific process for creating this list. In constructing

a methodology for creating the proposed

List of Occupations that Receive Tips, the

Treasury Department and the IRS used

traditional tools of statutory construction, including dictionary definitions, to

clarify what it means for an occupation

to customarily and regularly receive tips.

In compiling the proposed list, the Treasury Department and the IRS needed a

source of occupational data from which

to select those occupations that customarily and regularly received tips on or

before December 31, 2024, to avoid relying solely on anecdotal information. The

Treasury Department and the IRS utilized the best comprehensive data source

available to them—occupations reported

on 2023 Federal income tax returns,4 the

latest tax year for which complete information was available at the time the proposed regulations were published. The

many different occupations that taxpayers

identified on the “Your occupation” line

on their income tax returns were analyzed

based on the SOC Code associated with

the occupation. The SOC Codes associated with income tax returns with accompanying 2023 Forms W-2, Wage and Tax

Statement, and Forms 4137, Social Security and Medicare Tax on Unreported Tip

Income, reporting more than $100 per

year in tip income were identified and

compiled into a preliminary list. For every

SOC Code on this list, data on reported

tips, including the percentage of individuals within that SOC Code who reported

tips (on associated Forms W-2 and 4137),

was determined. Thus, occupational data

from income tax returns was calculated

with respect to the related SOC Code, not

necessarily for the occupation listed on

the individual income tax return. Next, the

Treasury Department and the IRS created

the TTOC system for organizing the proposed List of Occupations that Receive

Tips. This process sometimes involved

combining or dividing certain SOC Codes

to describe the occupations in a userfriendly manner and to remove non-tipped

occupations that were included under

the same SOC Code as tipped occupations. The proposed regulations identified

some occupations as distinct categories,

while other occupations were embedded

in broader categories (for example, eyelash technicians, as discussed later, were

included implicitly under TTOC 603 Barbers, Hairdressers, Hairstylists, or Cosmetologists or TTOC 606 Eyebrow Technicians).

As explained in the preamble to the

proposed regulations and noted earlier, the

proposed List of Occupations that Receive

Tips and its related data on reported tips

had limitations. Tipped occupations with

a large proportion of individuals working

in those occupations as independent contractors may have been underrepresented

in the list, since the list only included

employees reporting tips.5 In addition,

in certain cases, tipped occupations were

grouped in the same SOC Code as nontipped occupations, resulting in a lower

percentage of individuals reporting tips

for that SOC Code than for the occupation

within the SOC Code that was the tipped

occupation.

As described earlier, other information

sources, including occupations identified

in the GITCA program, the House Budget Committee report on the OBBBA, and

the PSID, were consulted to help address

some of the limitations of the list. However, many of these sources were not

exhaustive lists of tipped occupations and

others were based on data not as comprehensive and statistically significant as

income tax return data.

While the data and information the

Treasury Department and the IRS used to

develop the proposed List of Occupations

that Receive Tips had limitations, it was

and continues to be the best data available

for this purpose. When compiling the List

of Occupations that Receive Tips in the

proposed and final regulations, the Treasury Department and the IRS reviewed

preliminary data available for tax year

2024. This preliminary data was updated

between the issuance of the proposed regulations and these final regulations, but

in both cases it is substantially similar to

the tax year 2023 data and did not alter

the list. None of the commenters provided

alternatives for reliable data sources, nor

did they provide alternative methodologies for constructing the List of Occupations that Receive Tips. For these reasons,

the Treasury Department and the IRS used

the same methodology and data from the

proposed regulations (including updated

preliminary 2024 tax return information)

to develop the List of Occupations that

Receive Tips in the final regulations.

In response to the comments received

regarding occupations not specifically

identified in the proposed list, the Treasury Department and the IRS reviewed

the same available data at both the SOC

Code level and the more granular level

of the occupations listed on individual

income tax returns.6 Where the data supported a modification to the list, the Treasury Department and the IRS expanded or

refined the list of occupations in the final

The Treasury Department and the IRS reviewed preliminary data for the 2024 tax year and anticipated that final 2024 data would be substantially similar to 2023 data.

Only employees receive Forms W-2, which include separate tip reporting. Similarly, only employees report their tips using Form 4137. Independent contractors do not separately report

tips on their income tax returns, and the information returns received by independent contractors prior to 2026, such as Forms 1099-MISC, did not separately report tips. Thus, no tax return

information was available concerning tips received by independent contractors. Beginning in tax year 2026, information returns furnished to both independent contractors and employees

will separately report certain tips.

6

The Treasury Department and the IRS reviewed the data at the more granular level of occupations listed on individual income tax returns to verify that the SOC Code grouping did not

exclude occupations based on inaccurate data.

4

5

Bulletin No. 2026–18

843

April 27, 2026

regulations to more accurately identify

occupations that customarily and regularly

received tips on or before December 31,

2024. The specific comments requesting

additional occupations and the changes

made in response are described later in

this preamble.

Concerning comments asking that the

occupations on the List of Occupations

that Receive Tips be based on the nature

and substance of the services provided in

the occupation rather than the context or

industry in which they are provided, generally the names and descriptions of the

occupations on the List of Occupations

that Receive Tips are based on the nature

of the service provided in that occupation.

The groupings of the various occupations under industry-related headings like

“Beverage and Food Service” is solely for

purposes of organizing the list. However,

in a few situations the industry context in

which an occupation operates changes the

nature of the occupation in comparison to

other industrial contexts to such an extent

that it becomes a separate occupation. For

instance, “desk clerks” in the hospitality

industry provide a range of very specific

services to hotel, motel, and resort guests

such that it is a distinct occupation from

desk clerks in other industry contexts.

Some commenters expressed concern

that several of the occupations on the list

are not considered occupations in which

employees “customarily and regularly”

receive tips under the FLSA. These commenters were concerned that the inconsistencies might cause confusion. One commenter asked for more clarification as to

how the List of Occupations that Receive

Tips interacts with FLSA rules.

As the Treasury Department and IRS

explained in the preamble to the proposed

regulations, the FLSA uses the phrase

“customarily and regularly” in relation to

the FLSA tip credit.7 The FLSA defines a

“tipped employee” for whom an employer

may take a tip credit as “any employee

engaged in an occupation in which he customarily and regularly receives more than

$30 a month in tips.” 29 U.S.C. 203(t).

The FLSA further provides that when an

employer takes an FLSA tip credit for a

tipped employee, the tipped employee must

retain all of the tips the employee receives,

except that this requirement “shall not be

construed to prohibit the pooling of tips

among employees who customarily and

regularly receive tips.” 29 U.S.C. 203(m)

(2)(A).8 United States Department of

Labor (DOL) regulations provide, in part,

that “[t]he phrase ‘customarily and regularly’ signifies a frequency which must be

greater than occasional, but which may be

less than constant.” 29 CFR 531.57.9 DOL

guidance also addresses specific occupations in which employees customarily and

regularly receive tips within the meaning

of the FLSA. For instance, DOL guidance

interpreting the FLSA states that servers,

counter personnel who serve customers,

bellhops, bussers (that is, server helpers),

and service bartenders are examples of

occupations that “customarily and regularly receive tips” for purposes of the

FLSA.10 The occupations DOL has identified as occupations in which employees

customarily and regularly receive tips in

its guidance are not meant to be exhaustive and do not control for purposes of

section 224 of the Code.

There are many differences between

the specific language, purpose, and history

of the FLSA tip provisions versus the language, purpose, and history of the deduction for qualified tips under section 224

of the Code. Among other things, while

the text of the FLSA is expressly limited

to occupations in which an employee

receives “more than $30 a month in tips,”

section 224 contains no such limitation,

and the Treasury Department and IRS

have not utilized this threshold for purposes of limiting the List of Occupations

that Receive Tips.

In addition, while the FLSA contemplates that an employee must have some

level of customer interaction to “customarily and regularly” receive tips,11 section

224(d)(3) provides that for purposes of the

deduction for qualified tips under section

224, cash tips include, in the case of an

employee, tips received through a tip sharing arrangement. Accordingly, the Treasury Department and IRS included in the

proposed List of Occupations that Receive

Tips some occupations that may not have

extensive, or any, customer interaction,

and in which employees have not been

considered to customarily and regularly

receive tips under the FLSA, including

dishwashers and cooks. The final regulations take the same approach.

In addition to the differences discussed above, section 224 and the FLSA

serve different purposes. The purpose of

section 224 is to provide a deduction for

individuals who receive tips, while the

FLSA, in relevant part, governs the conditions under which employers may take

a credit towards their wage obligations for

employees who receive tips. Given that

section 224 of the Code and the FLSA tip

provisions are entirely different statutory

provisions with different histories and

purposes, the inclusion of occupations as

tipped occupations under section 224 has

no bearing or effect on what occupations

are considered tipped for purposes of the

FLSA and any differences should not be a

source of confusion.

Commenters also asked how the IRS

will determine whether a particular taxpayer’s occupation is on the List of Occupations that Receive Tips in the regulations when it is not listed as an illustrative

example. One commenter asked that the

IRS provide transparency as to how the

See 90 FR at 45344. Under the FLSA, so long as certain criteria are satisfied, employers can take a tip credit to bring a tipped employee’s total wages up to the Federal minimum wage amount.

See 29 U.S.C. 203(m)(2)(A)(i)-(ii). Currently, the federal minimum wage is $7.25 per hour, and the maximum tip credit amount is $5.12.

8

The FLSA’s tip credit has several components, including that an employee must be in an occupation in which the employee customarily and regularly receives at least a certain amount per

month in tips (more than $30), retains all tips (except for a pool limited to employees who customarily and regularly receive tips), receives other direct wages, and receives advance notice to

qualify as a “tipped employee” for whom an employer may take a tip credit against its minimum wage obligations. See 29 U.S.C. 203(m)(2)(A), (t).

9

The regulations also provide that “if an employee is in an occupation in which he normally and recurrently receives more than $30 a month in tips, he will be considered a tipped employee

even though occasionally because of sickness, vacation, seasonal fluctuations or the like, he fails to receive more than $30 in tips in a particular month.” 29 CFR 531.57.

10

See DOL Field Operation Handbook, §30d08. Retrieved December 18, 2025, from https://www.dol.gov/agencies/whd/field-operations-handbook; see also WHD Opinion Letter FLSA202503 (Sept. 30, 2025); WHD Opinion Letter FLSA2009-12 (Jan. 15, 2009); WHD Opinion Letter FLSA2008-18 (Dec. 19, 2008); and WHD Opinion Letter FLSA-858 (June 28, 1985) (concluding that barbacks, itamae-sushi and teppanyaki chefs, and a “wine-server/captain-host,” respectively, could be included in a tip pool with tipped employees for whom the employer took

a tip credit).

11

See Montano v. Montrose Rest. Assocs., 800 F.3d 186, 189-194 (5th Cir. 2015) (holding that a factfinder could determine that an employee did not “customarily and regularly receive tips,”

despite the fact that the employer included him in a tip pool).

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Bulletin No. 2026–18

IRS intends to interpret whether an occupation is on the List of Occupations that

Receive Tips. Taxpayers wishing to claim

the deduction and entities responsible

for information reporting are primarily

responsible for ensuring their occupation

is on the List of Occupations that Receive

Tips. The list, in most instances, is sufficiently specific to provide clarity. The IRS

intends to interpret the occupations on the

list in a fair and impartial manner consistent with their commonly understood

meaning.

Several commenters asked that the

List of Occupations that Receive Tips be

a non-exhaustive one (one commenter

stating that an exclusive list was not supported by statute). One commenter suggested instituting a safe harbor provision

for claiming deductions for non-listed

occupations and setting up a semi-annual

review process for adding new occupations to the list. Another commenter suggested listing the occupations in a revenue

procedure and updating the revenue procedure with additional occupations based

on more current data, if necessary.

Because section 224(d)(1) provides

that “[t]he term ’qualified tips’ means cash

tips received by an individual in an occupation which customarily and regularly

received tips on or before December 31,

2024, as provided by the Secretary,” only

tips received in an occupation that is on

the List of Occupations that Receive Tips

“provided by the Secretary” are qualified

tips. In addition, the statutory language

does not contemplate an evolving or

updated List of Occupations that Receive

Tips but rather describes one list of occupations that customarily and regularly

received tips at a specific point in time –

on or before December 31, 2024. Through

the notice of proposed rulemaking notice

and comment process, interested parties

were provided the opportunity to suggest

additions and other edits to the List of

Occupations that Receive Tips in the proposed regulations. As discussed later, the

Treasury Department and the IRS made

several revisions in response to the comments. However, the statute requires that

the Secretary provide a comprehensive list

as of a fixed point in time. For this reason,

the final regulations contain the requirement from the proposed regulations that

only qualified tips received in connection

Bulletin No. 2026–18

with the occupations on the List of Occupations that Receive Tips are eligible for

the deduction in section 224(a). However,

note that while the List of Occupations

that Receive Tips is exhaustive, the illustrative examples of occupations that fit

within each TTOC are not. There may be

other occupations that fall within a TTOC

that are not listed as an illustrative example.

2. Comments Concerning the List of

Occupations that Receive Tips

Several commenters indicated their

support for specific occupations included

on the proposed List of Occupations that

Receive Tips, including occupations in

the beauty industry, app-based delivery

drivers, and digital content creators. Many

commenters requested that additional

occupations be added to the List of Occupations that Receive Tips. Several of the

requested additions were for occupations

that were already included in the proposed

List of Occupations that Receive Tips,

either as their own category or specifically

mentioned as an illustrative example in

an existing category, such as pet groomers, digital content creators, dancers, boat

workers, pool cleaners and yoga instructors. Those occupations remain on the

final list.

A. Comments requesting additional

details or clarification for occupations

already on the List of Occupations that

Receive Tips

Some commenters requested that additional occupations be included as illustrative examples in the categories in which

they belong. The illustrative examples

were provided to assist taxpayers, but they

are not an exhaustive list of every occupation that fits under a TTOC occupation

category. For example, under the TTOC

for Travel Guides (705), cruise director

and river expedition guide are listed as

illustrative examples. But other travel

guides, such as a hiking guide or urban

ghost tour guide, would also be included

in this TTOC, even though they are not

listed as illustrative examples.

One commenter asked about including

“table game supervisors” in casinos on

the List of Occupations that Receive Tips.

845

The SOC Code for “First-Line Supervisors of Gambling Service Workers” (391013), whose duties can include planning

and organizing activities and services for

guests in hotels and casinos, was included

in the proposed List of Occupations that

Receive Tips under TTOC 201, Gambling

Dealers, and continues to be included

under this category in the final regulations.

Thus, table game supervisors are covered

by the Gambling Dealers category.

One commenter requested that residential building staff, such as doormen, be

added to the list. Most residential building

staff are covered by the categories in the

proposed List of Occupations that Receive

Tips. For example, if a residential building

has a concierge, they are already included

in the “Concierges” category (TTOC

302). Residential building maintenance

workers fit under the “Home Maintenance

and Repair Workers” (TTOC 401). And

finally, doormen fit as part of the “Baggage Porters and Bellhops” (TTOC 301).

However, to clarify that this category can

include workers who do not work in a

hotel or motel, “doorman” has been added

to the list of illustrative examples for this

category in the final regulations.

Another commenter asked that eyelash

technicians be added to the List of Occupations that Receive Tips. The proposed

List of Occupations that Receive Tips

included “Eyebrow Threading and Waxing Technicians” (TTOC 606). For clarity, in the final regulations this category

is revised to read “Eyebrow and Eyelash

Technicians,” and additions were made to

the description to include eyelash technicians.

One commenter asked that a winery tasting room server be added to the

List of Occupations that Receive Tips.

The proposed List of Occupations that

Receive Tips included “Food Servers,

Non-restaurant” (TTOC 103), and a winery tasting room server is covered by this

category. The final regulations clarify this

by amending the category name to “Food

and Beverage Servers, Non-restaurant”

(newly added language shown in italics).

One commenter asked that the phrase

“over established routes or within an

established territory” be removed from

the description of “Goods Delivery People” (TTOC 804) to clarify that app-based

delivery workers (also called gig economy

April 27, 2026

delivery drivers) are covered by that category. The proposed illustrative examples

focused on the service being performed

(e.g., pizza delivery, package delivery)

rather than the method through which

the service was requested. The Treasury

Department and the IRS agree that adding

“app/platform based delivery person” to

the illustrative list would be helpful. The

final regulations include this clarification

in both “Goods Delivery People” (TTOC

804) and “Taxi and Rideshare Drivers and

Chauffeurs” (TTOC 802). In addition,

the phrase “over established routes or

within an established territory” has been

removed from the description of “Goods

Delivery People” in the final regulations.

One commenter asked that more detail

be provided for the various occupations in

the “Recreation and Instruction” grouping to encompass the full range of outdoor recreation guiding and instructional

activities, and more specifically that “Tour

Guides” and “Travel Guides” expressly

include outdoor, wilderness, and expedition guiding services. Although outdoor

recreation occupations are addressed

in “Travel Guides” (TTOC 705) (river

expedition guide is listed as an illustrative example), the Treasury Department

and the IRS agree that additional detail

would be helpful, and the final regulations

include a parenthetical noting that both

indoor and outdoor locations are covered.

Another commenter requested that

banquet wait staff be added to the List

of Occupations that Receive Tips. The

proposed regulations included the “Wait

Staff” (TTOC 102) category. The Treasury

Department and the IRS agree that additional detail would be helpful to confirm

that banquet wait staff are covered by this

category. The final regulations add “banquet staff” as an illustrative example, and

the description is amended to read, “Take

orders and serve food and beverages to

patrons in dining establishments or at

catered events” (newly added language

shown in italics).

One commenter asked whether people

who dress as Santa Claus for parties are in

an occupation that customarily and regularly received tips on or before December

31, 2024. Individuals dressed up as Santa

Claus, as well as other characters or celebrities, are covered by the “Entertainers and

Performers” (TTOC 208) category.

Another commenter asked that self-enrichment and self-improvement instructors, such as intuition coaches, energy

practitioners (including Reiki and Energy

Psychology practitioners), and meditation instructors be included on the List of

Occupations that Receive Tips. Although

these specific occupations were not identified in the proposed regulations, depending on the nature of the instruction provided and the facts and circumstances of

each particular situation, these instructors could be covered under “Self-Enrichment Teachers” (TTOC 702), if their

instruction is for the primary purpose of

self-enrichment, rather than for an occupational objective, educational attainment, competition; or fitness; “Sports and

Recreation Instructors” (TTOC 706), if

they are teaching or instructing individuals or groups for the primary purpose of

recreation, rather than for an occupational

objective, educational attainment, competition, or fitness; or “Exercise Trainers and

Group Fitness Instructors” (TTOC 608),

if they are instructing or coaching groups

or individuals in exercise activities for the

primary purpose of personal fitness.

One commenter requested that senior

living and resident care service providers

be included in the List of Occupations that

Receive Tips. The proposed regulations

would have included the category of “Personal Care and Service Workers” (TTOC

501). To clarify that resident care is also

included in this occupation category, the

description in the final regulations provides that “work 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”

(newly added language shown in italics).

Another commenter asked that the

illustrative examples name all beauty-sector occupations including estheticians and

apprentices and assistants. As discussed

previously, the illustrative examples are

a non-exhaustive list of occupations. In

addition, the final regulations clarify that

apprentices and assistants qualify under

the applicable TTOC occupation category

if they perform the same services as those

listed in the TTOC occupation description.

Finally, a commenter noted that the

proposed category of “Pet Caretaker”

(TTOC 506) would exclude individuals

who provide care to horses because horses

are considered livestock in certain legal

contexts. This commenter stated that certain tasks involved in the care of horses,

including grooming and exercising, are

similar to the tasks included in the description of pet caretakers. In response to this

comment, the final regulations include the

category of “Pet and Show Animal Caretaker” (TTOC 506). In addition, “horse

groomer” has been added to the list of

illustrative examples for this occupation

category.

B. Comments suggesting new

occupations be added to the List of

Occupations that Receive Tips

In evaluating comments suggesting

new occupations for inclusion on the List

of Occupations that Receive Tips, the

Treasury Department and the IRS consulted the same data sources as in preparing the proposed List of Occupations that

Receive Tips in the proposed regulations

(the 2023 income tax return data, the preliminary data available for tax year 2024,

IRS voluntary tip reporting program data,

legislative history and survey data regarding tipped occupations), as well as the

updated preliminary data available for

tax year 2024. The Treasury Department

and the IRS examined the data for the

suggested new occupations at the more

granular level of the occupations listed on

individual income tax returns, in addition

to looking at the SOC Codes of the suggested new occupations. This examination

of the data is the basis for responding to

the following comments.12

One commenter requested that “florists” be included on the List of Occupations that Receive Tips. The proposed

regulations would have included event

Given the wide variation of terms used to characterize occupations on income tax returns, it was not feasible to examine every occupation in this way. For this reason, this examination was

conducted only for occupations that commenters suggested were missing from the list of tipped occupations in the proposed regulations.

12

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846

Bulletin No. 2026–18

florist as an illustrative example of “Private Event Planners” (TTOC 502), and the

SOC Code for Floral Designers, 27-1023,

would have been included as one of the

related SOC Code for TTOC 502. Similarly, the proposed regulations would have

included floral delivery persons as an

illustrative example of “Goods Delivery

People” (TTOC 804). In response to this

comment, the Treasury Department and

the IRS reviewed the available data again,

this time examining the data for occupations listed on individual income tax

returns that were related to florists, in addition to looking at data for florist-related

SOC Codes. The Treasury Department

and the IRS determined that the data for

florist-related occupations listed on individual income tax returns supports adding a new TTOC for “Floral Designers”

(TTOC 510), which encompasses a wider

variety of floral workers. “Event florist”

was removed as an illustrative example

from “Private Event Planners” and added

to the new “Floral Designers” category,

and the related SOC Code, 27-1023, was

also moved from “Private Event Planner”

to the new “Floral Designers” category.

Another commenter asked that artists

and artisans be added to the List of Occupations that Receive Tips. The proposed

regulations did not separately identify

artists as an occupation that customarily

and regularly received tips on or before

December 31, 2024. However, individuals who may be described as artists

appeared in multiple occupation classifications, and the proposed regulations

would have included certain performing

artists on the List of Occupations that

Receive Tips. For example, both dancers

and musicians would have been included

(TTOC 205 and 206). In response to this

comment, the Treasury Department and

the IRS reviewed the same data sources

described in the proposed regulations,

examining the data for occupations listed

on individual income tax returns that were

related to artists, distinct from occupations such as dancers and musicians, in

addition to looking at data for artist-related SOC Codes. The Treasury Department and the IRS determined that the

data for artist-related occupations listed

on individual income tax returns supports

the conclusion that a visual artist is also

an occupation that customarily and regularly received tips on or before December

31, 2024. The final regulations include the

new category of “Visual Artists (TTOC

509)” This category includes individuals

who create original visual artwork using

any of a wide variety of media and techniques. Examples of this category include

ice sculptor and caricature sketch artist.

Tip-related income tax return data for the

occupation “artisan” did not support adding this occupation category as a separate

TTOC. However, the terms “artist” and

“artisan” are similar in meaning and it is

possible that many individuals who perform services as an artisan might also be

considered as performing services as an

artist, depending on the particular facts

and circumstances.

One commenter suggested that gas

station attendants who pump gas for customers where they are required to do so by

State law should be included on the List of

Occupations that Receive Tips. The Treasury Department and the IRS reviewed

tip-related income tax return data for gas

pump attendants located in New Jersey

and Oregon, the two States that currently

prohibit customers from pumping their

own gas.13 This data showed that gas

pump attendants in States where full-service gas pumping is mandated customarily and regularly received tips on or before

December 31, 2024. Based on this data,

the final regulations include a new TTOC

for “Gas Pump Attendants,” which applies

to all individuals who pump gas for customers at a gas station and may also clean

the windshield, check the oil level, or

check the tire pressure of the customer’s

car in conjunction with the car being refueled.

Commenters suggested that chiropractors, accountants, tax preparers, clergy

members, concert merchandise sellers,

and “low bono” legal service providers

(legal professionals who provide legal

services to clients on a sliding scale based

on income) be added to the List of Occupations that Receive Tips. In response to

these comments, the Treasury Department and the IRS reviewed the same data

sources described in the proposed regulations (as well as the updated preliminary

2024 tax data), examining the data for

occupations listed on individual income

tax returns that were related to chiropractors, accountants, tax preparers, clergy

members, concert merchandise sellers,

and “low bono” legal service providers,

in addition to looking at the data for the

SOC Codes related to these occupations.

Except for clergy members acting in certain roles, the Treasury Department and

the IRS determined that the data does not

support that these occupations were customarily and regularly tipped on or before

December 31, 2024. For that reason, these

occupations are not included in the List of

Occupations that Receive Tips in the final

regulations. Concerning clergy, while the

data does not support listing clergy members as a separate occupation that customarily and regularly received tips, it does

reflect that clergy may receive tips in an

event setting such as a wedding or funeral.

For this reason, they are included as an

illustrative example under “Event officiants” with a TTOC of 505.

Some commenters asked that retail

cashiers be included on the List of Occupations that Receive Tips. The Treasury

Department and the IRS reviewed the

same data sources described in the proposed regulations (as well as the updated

preliminary 2024 tax data), examining

the data for occupations listed on individual income tax returns that were related

to retail cashiers, in addition to looking

at the data for the SOC Codes related to

this occupation. While tip-related income

tax return data does show that some individuals who self-identified as “cashiers”

received tips, the data also shows that

these cashiers receiving tips mostly

worked in an industry that would classify them as an occupation separate from

“retail cashier.” Specifically, many such

cashiers worked in the Hotel and Food

Services sectors so that these cashiers

would likely be categorized as Fast Food

and Counter Workers (TTOC 107) (for

those in food establishments) or Hotel,

Motel, and Resort Desk Clerks (TTOC

303) (for those in hotel establishments).

Thus, the data does not support adding a

Under 2023 Oregon House Bill No. 2426, signed into law on August 4, 2023, the state of Oregon now allows self-service in certain situations, but certain gas stations in the State are still

required to provide full service for at least half of the gas pumps at the station. 2023 Oregon House Bill No. 2426, Oregon Eighty-Second Legislative Assembly.

13

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847

April 27, 2026

more generalized “cashier” category, and

this occupation category is not included in

the List of Occupations that Receive Tips

in the final regulations.

Another commenter requested that the

full range of positions in the gaming industry be included in the List of Occupations

that Receive Tips, including poker associates who change out chips in casinos,

and online dealers (sometimes known as

game presenters) and other workers in the

online gaming industry. There is no statutory authority in section 224 for including

an occupation based solely on the fact that

it is practiced in a certain industry. Only

occupations that customarily and regularly received tips on or before December

31, 2024, are included in the List of Occupations that Receive Tips. Occupations in

the gaming industry that meet this criterion are included in the list. This includes

many of the occupations identified by the

commenters, such as poker associates

who change out chips in casinos (included

in “Gambling Change Persons and Booth

Cashiers” (TTOC 202)). For these reasons, no additional occupational categories were added to the List of Occupations

that Receive Tips in response to this comment.

One commenter asked that the regulations clarify the tax consequences

when managerial staff or owners participate in tip pools. The rules under the

FLSA prohibit managers and supervisors from receiving tips from a tip pool.

See 29 U.S.C. 203(m)(2)(b) and 29 CFR

531.54(c)(3) and (d). Given this prohibition under the FLSA, the final regulations

provide that amounts received by a manager or supervisor through a voluntary or

mandatory tip-sharing arrangement such

as a tip pool are not qualified tips. However, the final regulations also clarify that

amounts received directly by a supervisor

or manager for services they provided

in the course of duties performed in an

occupation that customarily and regularly

received tips on or before December 31,

2024, are qualified tips if all other requirements for qualified tips are met. Two

examples that demonstrate this provision

concerning managers are included in the

final regulations.

Finally, several commenters suggested

that there should be a safe harbor for

all participants in a GITCA or Tip Rate

Determination Agreement (TRDA) providing that they are automatically considered in a qualifying occupation. One commenter suggested that GITCA participants

should not be eligible for the deduction.

Another commenter asked that GITCA

participants be able to claim the deduction

based on their designated tip rates. Section 224 provides no basis for automatically considering participants in GITCA

and TRDA as working in occupations on

the List of Occupations that Receive Tips.

An occupation that did not customarily

and regularly receive tips on or before

December 31, 2024, is not eligible for the

section 224 deduction, even if workers in

a similar occupation may have customarily and regularly received tips in certain

specific contexts (such as in a casino). For

these reasons, no safe harbor for GITCA

and TRDA participants was added to the

final regulations. There also is no basis for

excluding an otherwise eligible individual

from the section 224 deduction merely

because the individual is a participant in

GITCA, and no such rule is included in

the final regulations. In addition, the proposed regulations would have provided

that GITCA participants could claim the

deduction based on their designated tip

rates, and this provision is included in the

final regulations.

Other nonsubstantive edits were made

to the chart to correct SOC Code numbering errors. No occupations included on the

proposed List of Occupations that Receive

Tips in the proposed regulations were

removed from the List of Occupations that

Receive Tips in the final regulations.

3. Comments on the Requirement that

Qualified Tips must be Voluntary

Section

224(d)(2)(A)

expressly

requires that qualified tips are paid “voluntarily without any consequence in the

event of nonpayment” and not “the subject of negotiation.” The proposed regulations would have provided that amounts

are qualified tips only if they are paid

voluntarily and without any consequence

in the event of nonpayment, are not the

subject of negotiation, and are determined

by the payor. Concerning automatic gratuities, the proposed regulations would

have provided that qualified tips must be

paid without compulsion and therefore

service charges, automatic gratuities and

any other mandatory amounts automatically added to a customer’s bill by the

vendor or establishment are not qualified

tips, even if the amounts are subsequently

distributed to employees. However, if a

customer is expressly provided an option

to disregard or modify amounts added to

a bill, such amounts are not mandatory

amounts.

Several commenters supported the

exclusion of automatic gratuities from the

definition of qualified tips in the proposed

regulations. These commenters agreed that

an automatic gratuity is not voluntary as

required by section 224. Other commenters argued that automatic gratuities and

service charges serve the same purpose as

other tips and should be considered qualified tips. These commenters contended

that many employers already treat these

amounts as tips and that automatic gratuities are an important source of income

for certain employees, such as cooks and

dishwashers, who do not typically receive

tips through tip-sharing arrangements due

to FLSA tipping rules.14 Several of these

commenters maintained that automatic

gratuities are an important source of tips

in large group and banquet situations.

Several commenters requested a transition

rule, allowing individuals to treat service

charges as tips for 2025. Some commenters argued that an automatic gratuity is

voluntary in the sense that the customer

takes the automatic gratuity into account

when deciding whether to patronize an

establishment.

Automatic gratuities added to a bill

with no explicit option for the customer

to decline or adjust the gratuity are mandatory because the customer must pay the

gratuity to receive the service. The customer’s “option” to reject the automatic

gratuity by opting not to patronize the

business is not an option to pay or not pay

a gratuity (which is a choice a customer

ordinarily makes based on the customer’s

The FLSA provides that when an employer takes an FLSA tip credit for a tipped employee, the tipped employee must retain all of the tips the employee receives, and the employer cannot

require the employee to pool tips except with other “employees who customarily and regularly receive tips.” 29 U.S.C. 203(m)(2)(A).

14

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opinion of the service after the service

is provided), but is instead the option to

patronize or not patronize the business

(which is a choice the customer makes

based on, among other things, the cost of

the service, including the automatic gratuity, and the type and quality of services

offered by the business, before the customer receives any service). In addition,

the business determines the tip percentage

of an automatic gratuity, not the customer

(i.e., the payor). For these reasons, automatic gratuities do not comply with the

requirements for qualified tips provided

by section 224(d)(2)(A). To the extent that

the customer freely decides to provide an

additional gratuity, this additional amount

constitutes a qualified tip if all factors are

met with respect to that portion.

In addition, the IRS has long maintained

that service charges do not qualify as tips.

Revenue Ruling 2012-18 provides that the

absence of any of the following factors

creates a doubt as to whether a payment

is a tip and indicates that the payment may

be a service charge: (1) the payment must

be made free from compulsion, (2) the

customer must have the unrestricted right

to determine the amount, (3) the payment

should not be the subject of negotiation or

dictated by employer policy, and (4) generally, the customer has the right to determine who receives the payment. See also

Ann. 2012-25, 2012-26 I.R.B. 1058; Rev.

Rul. 59-252, 1059-2 C.B. 215. Example

A in Revenue Ruling 2012-18 concludes

that an 18% charge automatically added to

a bill for a large party is a service charge

and not a tip because it was dictated by

the employer and was not paid free from

compulsion.

Because the proposed regulations are

consistent with section 224 and the IRS’s

longstanding position that service charges

are not tips, the final regulations maintain

the position in the proposed regulations

that automatic gratuities, such as service

charges, are not qualified tips for purposes

of the deduction. In addition, because the

statute is clear on this point and the IRS’s

position that automatic gratuities are not

tips has been publicly available since at

least 2012, a transition rule for 2025 concerning automatic gratuities is not warranted.

One commenter noted that while Revenue Ruling 2012-18 used similar rules

Bulletin No. 2026–18

to section 224(d)(2)(A) to distinguish

between tips and service charges for FICA

and income tax withholding purposes, the

revenue ruling, unlike the proposed regulations, did not include examples with

respect to “suggested gratuities”. The

commenter suggested that the revenue

ruling be updated to include examples of

“suggested gratuities” that mirror those in

the proposed regulations to provide further clarification of the revenue ruling’s

application in these situations. The Treasury Department and the IRS agree that

the revenue ruling contains rules for distinguishing tips from service charges that

are similar to the rule provided in section

224(d)(2)(A) and that “suggested gratuities,” as described in the proposed regulations, comply with these rules such that

they would be considered tips under the

revenue ruling. Updates to Revenue Ruling 2012-18 are outside the scope of these

final regulations, but the Treasury Department and the IRS will consider updating

Revenue Ruling 2012-18 or providing

additional guidance containing examples

involving suggested gratuities and the

employment tax consequences of those

payments.

The proposed regulations would have

provided several examples demonstrating voluntary tipping practices involving Point-of-Sale (POS) system. Some

commenters requested that the final regulations clarify that other POS systems

are considered voluntary as long as they

provide the customer with the option of

selecting a zero value. Specifically, several commenters mentioned “tip sliders”

that allow the customer to designate a tip

using a sliding bar on a POS screen, which

the customer “slides” to the desired tip

amount. Other commenters asked about

POS systems that only allow the customer

to either choose a percentage or choose

“other” and input zero manually.

The proposed regulations would have

provided that if a customer is expressly

provided an option to disregard or modify amounts added to a bill, such amounts

are not mandatory amounts. The language

in the final regulations has been modified

slightly to make clear that the customer

must have the option to reduce the tip

amount to zero. Under this provision, tip

selection methods such as POS systems

with a tip slider that goes to zero or an

849

option for the customer to select “other”

and input zero are voluntary. The examples in the final regulations have been

modified to clarify that these methods are

considered voluntary tipping practices.

A few commenters asked if contractual arrangements that include suggested

tips for services before they are provided

are voluntary tips. One commenter asked

for clarification as to what “without consequence” means. In § 1.224-1(c)(3)

(Example 8) of the proposed regulations

described a contract with varying prices

depending on whether a tip was included.

The failure to agree to a specific tip

amount resulted in a higher price for the

service. Accordingly, nonpayment of the

tip was not “without consequence” in this

situation (because nonpayment resulted

in a higher price). If the contract terms

merely added the discretionary tip as a

“convenience” for the customer, subject

to the customer’s agreement, the tip would

be voluntary. The Treasury Department

and the IRS agree that additional guidance

would be helpful on this issue. Although

whether the failure to pay a tip is made

“without consequence” will depend on

the facts and circumstances of a particular situation, the final regulations clarify

that situations where nonpayment of a tip

is without consequence include situations

where nonpayment of the tip does not

have any impact on the scope or cost of

the service. The final regulations also contain a new example where the tip is part of

the contract that is entered into before the

services are provided. The example concludes that the tip is a qualified tip because

it is paid without consequence. If the customer had chosen to not pay the tip then

the scope or cost of the service would not

have been affected.

Several commenters requested clarification regarding the voluntary nature

of payments to digital content creators.

One commenter noted that creators often

perform multiple activities in a single session, and payments could be intended for

different activities. The commenters asked

for guidance on when payments are tips

versus compensation for performance or

content. One commenter asked that the

final regulations clarify that audience

engagement mechanisms such as “super

chats,” and “super stickers,” which provide superficial digital rewards to con-

April 27, 2026

sumers of digital content, are qualified

tips. Other commenters asked that the

final regulations address situations where

the platform hosting a digital content creator’s content receives a portion of the tip

amount.

In response to the comments regarding the activities of digital content creators, the final regulations include two

new examples to help clarify when payments to digital content creators are tips

and when they are compensation. One

example involves customer payments to a

digital content creator that enable customers to gain access to the creator’s content.

These payments are not tips, but rather

compensation to the creator for services

provided (i.e., the content). The other

example involves voluntary customer

payments to a digital content creator after

the customer has already gained access to

the creator’s content, which is a tip to the

content provider because the payment was

not required to access content and was

voluntary and determined by the customer.

The final regulations also clarify that

tipping digital content creators through

audience engagement mechanisms that

result in superficial digital rewards, such

as highlighted messages or other digital

tokens of appreciation from the tip recipient that are negligible in value, do not

disqualify an otherwise qualified tip. The

final regulations also provide an example involving digital content creators and

audience engagement mechanisms.

Concerning platforms that retain a portion of amounts provided as tips to content creators, platform hosting is not the

equivalent of content creation and is not

on the List of Occupations that Receive

Tips. Section 224(d)(1) provides that

the term “qualified tips” means cash tips

received by an individual. For purposes

of the statute, the term “individual” refers

to the person performing the services and

receiving tips in connection with those

services and does not include an entity that

facilitates payment or transmits amounts

between customers and service providers.

In the context of digital content creation,

amounts provided by users as tips are

received only to the extent such amounts

are paid to the content creator. Any portion

of a user’s payment that is retained by a

host platform, which is not an occupation

on the List of Occupations that Receive

April 27, 2026

Tips, is not received by the individual content creator and is not a qualified tip for

purposes of the section 224 deduction. No

changes were made to the final regulations

in response to this comment.

4. Other Comments Regarding the

Definition of “Qualified Tips”

Several commenters asked that the

final regulations clarify whether tips that

are not reported on an information return

because, for instance, the tip is provided

in cash to an independent contractor or

is below the required reporting threshold

for certain information returns, are qualified tips. Other commenters asked that the

IRS provide a mechanism similar to Form

4137 for independent contractors to report

tips that are not included on an information return.

The text of section 224(a) allows a

deduction only for amounts of qualified

tips that are “included on statements furnished to the individual pursuant to section 6041(d)(3), section 6041A(e)(3), section 6050W(f)(2), or section 6051(a)(18),

or reported by the taxpayer on Form 4137

(or successor).” The proposed regulations

would have included similar language in

§ 1.224-1(a). In response to these comments, the final regulations further clarify

that amounts received as a tip that are not

separately reported to an individual on

a statement furnished to the individual

pursuant to section 6041(d)(3), section

6041A(e)(3), section 6050W(f)(2), or section 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor) are not

eligible for the deduction under section

224. But see Notice 2025-69 for transition rules related to 2025. Issues related to

reporting requirements, such as providing

a means by which independent contractors

can report tips that are not included on an

information return, are beyond the scope

of these regulations. The requirement that

tip amounts be reported to independent

contractors on an information return is

statutory and serves as an anti-abuse measure to prevent independent contractors

from recharacterizing income as tips.

Another commenter asked that the final

regulations provide a mechanism for partners to claim the deduction. The amount

of a tip received by a partner in a partnership in the individual’s capacity as a part-

850

ner would be reported on an information

return provided to the partnership, not to

the individual partner, even if the individual partner ultimately receives the tip.

Section 224(a) is clear that only qualified

tips included in a statement furnished to

an “individual” can be allowed as a deduction under section 224. Because the statement reporting the tip is provided to the

partnership, not the individual, the partner

cannot claim this amount as a deduction

under section 224.

Finally, one commenter requested that

the final regulations clarify eligibility for

the deduction for an employee who works

in two different occupations for the same

employer, one occupation that is on the

List of Occupations that Receive Tips and

one that is not. If all other section 224

statutory and regulatory requirements are

met, any tip amount received in an occupation that is on the List of Occupations

that Receive Tips in § 1.224-1(i) may

be claimed as a deduction under section

224. Tip amounts received in an occupation that is not on the List of Occupations

that Receive Tips are not eligible for the

deduction. If an individual works in two

occupations, one that is on the List of

Occupations that Receive Tips and one

that is not, the individual may claim the

qualified tip amounts received in the occupation that is on the List of Occupations

that Receive Tips as a deduction under

section 224 (assuming all other statutory

and regulatory requirements are met), but

may not claim as a section 224 deduction

any tip amounts received in the occupation that is not on this list. If an employee

works in two occupations that are both

on the List of Occupations that Receive

Tips, the individual may claim the qualified tip deduction with respect to amounts

received in both occupations under section 224. Since this result is a function of

existing rules in the proposed regulations,

no change was made in the final regulations to address this question.

5. Cash Tips Definition

The proposed regulations would have

defined cash tips as tips received from

customers or, in the case of an employee,

through a mandatory or voluntary tip-sharing arrangement, such as a tip pool, that

are paid in a cash medium of exchange,

Bulletin No. 2026–18

including by cash, check, credit card,

debit card, gift card, tangible or intangible tokens that are readily exchangeable

for a fixed amount in cash (such as casino

chips), and any other form of electronic

settlement or mobile payment application

that is denominated in cash. The proposed

regulations would have excluded from

this definition items paid in any medium

other than cash, such as event tickets,

meals, services, or other assets that are

not exchangeable for a fixed amount in

cash (such as most digital assets). The

proposed regulations would have defined

“tips” as “amounts paid by customers for

services that are in excess of the amount

agreed to, required, charged, or otherwise

reasonably expected to have to be paid for

the services in an arm’s-length transaction.

Several commenters asked for more

clarification on the definition of cash tips.

One commenter suggested that “cash tips”

be defined as any medium denominated in

U.S. cash, so as not to imply a preference

for physical currency. Some commenters

asked that the final regulations affirm that

the use of certain specific methods of payment, including digital tipping systems

(such as mobile apps), ticket-out/ticket-in systems (used in casinos), and digital assets such as stablecoins, bitcoin and

ether (referred to as Ethereum in the comment), qualify as cash tips for purposes of

the deduction. One commenter asked that

the final regulations allow for future guidance to define cash tips in the event other

dollar-pegged methods become available. A few commenters requested the

final regulations address foreign-sourced

tip amounts and domestic-sourced tip

amounts that are paid in foreign currency,

specifically, whether these amounts qualify for the deduction and the reporting

obligations for foreign-sourced income.

Commenters also asked whether voluntary amounts that are added to e-commerce purchases and donations made to

community websites are qualified tips.

The Treasury Department and the IRS

have determined that the cash tips definition in the proposed regulations generally

provides a comprehensive definition that

already addresses the various methods

of payment about which commenters

inquired. For this reason, the definition of

cash tips in the final regulations remains

largely unchanged from the proposed

regulations with the exception that the

final regulations clarify that for purposes

of section 224, cash tips also include

amounts paid in foreign currency. Concerning digital tipping systems, if the tips

provided through the system are denominated in cash (i.e., paid as a fixed amount

of currency); are in excess of the amount

agreed to, required, charged, or otherwise

reasonably expected to have to be paid for

the services; and are provided to an independent contractor or, if provided to an

employee, are provided to the employee

directly or through a tip-sharing arrangement, then the tips are considered cash tips

for purposes of the deduction. In order for

the amount to be eligible for the section

224 deduction in the case of an employee,

the amount must also be reported to the

employer as required by section 6053(a)15

or reported by the employee on Form

4137. Similarly, if tips provided using a

casino ticket-out, ticket-in system comply

with the requirements for cash tips provided in these final regulations, then the

tips are cash tips.

The proposed regulations did not

directly address the treatment of stablecoins pegged to the value of the U.S.

dollar. Some commenters noted that the

intended treatment of stablecoins under

the proposed regulations was unclear and

requested clarification. These requests,

and other developments, have led the

Treasury Department and the IRS to

reconsider whether any digital assets,

including stablecoins, should be considered cash tips for purposes of section

224. Most notably, in July 18, 2025,

Congress enacted the Guiding and Establishing National Innovation for U.S.

Stablecoins (GENIUS) Act (Public Law

119-27), which provides a framework for

regulating certain stablecoins, referred to

as “payment stablecoins.”16 The GENIUS

Act makes clear that payment stablecoins

are distinct from national currencies and

provides that payment stablecoins may

not be marketed as legal tender or as

issued by the United States. On September 19, 2025, the Treasury Department

published an Advance Notice of Proposed Rulemaking (ANPRM) soliciting

public comments on questions relating

to the implementation of the GENIUS

Act (90 FR 45159). Though the GENIUS

Act does not address the Federal income

tax treatment of payment stablecoins,

the ANPRM solicited comments on the

extent to which guidance on their tax

treatment would be necessary or helpful

to taxpayers. The Treasury Department

is reviewing the comments it received

on the ANPRM and considering potential guidance on these topics, including

whether payment stablecoins should be

treated as cash or cash equivalents for certain U.S. Federal income tax purposes. In

addition, legislative proposals have been

advanced that would address various tax

issues relating to digital assets, including

the treatment of stablecoins.

In light of the foregoing, the final regulations provide that all digital assets (as

that term is defined in section 6045(g)(3)

(D) of the Code and § 1.6045-1(a)(19)) are

excluded from the definition of cash tips.

The Treasury Department and the IRS

will consider the tax treatment of payment

stablecoins in connection with implementation of the GENIUS ACT, including

whether these final regulations should be

revised if payment stablecoins are treated

as cash or cash equivalents for other U.S.

Federal income tax purposes. Additionally, if legislation is enacted that modifies

the characterization of digital assets or of

particular digital assets such as payment

stablecoins such that they may be more

appropriately characterized as “cash tips,”

the Treasury Department and the IRS will

take that legislation into account in considering whether to revise the rules governing the treatment of digital assets provided in these final regulations.

Concerning future guidance for other

methods of payment, if the need arises to

address other methods of payments, the

Treasury Department and the IRS will

With respect to employees, the existing rules under section 6053(a) require employees to report tips received in the course of their employment to their employers, and employers to take

those reported amounts into account for wage reporting purposes. This reporting requirement does not apply to independent contractors.

16

The GENIUS Act becomes effective on the earlier of January 18, 2027, or 120 days after final implementing regulations are issued. The term “payment stablecoin” is defined in section

2(22) of the GENIUS Act.

15

Bulletin No. 2026–18

851

April 27, 2026

consider issuing additional guidance at

that time.

Regarding comments on e-commerce

voluntary surcharges, whether or not a

voluntary surcharge added to an e-commerce purchase is a qualified tip depends

on the occupation of the tip recipient. If

the service provided through the e-commerce transaction is from a person providing that service in an occupation that is on

the List of Occupations that Receive Tips,

and all other requirements for qualified

tips are met, then the tip is a qualified tip.

For example, if a customer commissions

an artist on an e-commerce site to create

a piece of art, and the customer includes a

cash tip when providing payment, the cash

tip is a qualified tip if all other requirements for qualified tips are met because

“artist” is an occupation included in the

List of Occupations that Receive Tips.

Finally, concerning voluntary charitable donations, including donations to

community websites for the benefit of an

individual or group of individuals, such

amounts are not qualified tips because

they are not amounts paid to an individual

in excess of an expected or agreed-upon

amount for a service provided in an arm’s

length transaction.

6. Specified Service Trade or Business

Exclusion

The proposed regulations would have

provided that an amount received by an

individual in the course of a specified

service trade or business (as defined in

section 199A(d)(2) and § 1.199A-5(b))

is not a qualified tip. Tips received by

an employee performing services for the

employee’s employer in the course of a

specified service trade or business operated by the employer are not qualified tips,

and the proposed regulations would have

clarified that this rule would have applied

without regard to whether an owner of the

trade or business is able to claim a section

199A deduction. The proposed regulations

would have also clarified that this rule

applies even if the employee receiving

tips in the course of working for a specified service trade or business employer is

working in an occupation that customarily

and regularly received tips on or before

December 31, 2024, and is listed on the

proposed List of Occupations that Receive

April 27, 2026

Tips. The Treasury Department and IRS

requested comments on the application

of the existing rules under § 1.199A-5(b)

to the specified service trade or business

definition in section 224.

One commenter expressed concern that

using the definition of a specified service

trade or business from section 199A(d)(2)

may exclude occupations that have historically received tips. Another commenter

noted that Treasury and IRS lack the

authority to expand the tips deduction by

deviating from section 199A(d)(2)’s definition of a specified service trade or business. Several commenters suggested that

additional guidance be issued to explain

how the specified service trade or business

rules apply in determining the qualified

tips deduction, including adding examples

of how the specified service trade or business rules apply in different employment

and self-employment scenarios and the

recordkeeping requirements that must be

met. One commenter requested specific

guidance regarding the interplay of the

hotel and lodging industry and qualified

tips for those engaged in a specified service trade or business. Another requested

that the act of providing personal appearance services, such as barbering, not be

considered a specified service trade or

business for purposes of the deduction.

Another commenter noted that the exclusion for tips received in a specified service

trade or business creates uncertainties and

administrative complexities for employers and tipped workers, and that certain

employers that did not previously have

to determine whether they were specified service trade or businesses will now

have to make such determinations. One

commenter supported a clarification in

the final regulations that roles that do not

pertain to the principal trade or business

at an establishment may still receive the

deduction from tips paid in the course of

employment at a specified service trade or

business.

One commenter suggested that the

specified service trade or business exclusion be applied when taxpayers file their

personal income tax returns, rather than by

requiring Form W-2 and Form 1099-series

reporting. Another commenter requested

that the final regulations refine the definition of specified service trade or business

in § 1.199A-5 for section 224 purposes

852

by providing objective criteria for the

term, “reputation or skill,” defining the

terms “appearance at an event” and “well

known,” and adopting a de minimis safe

harbor so that occasional demonstrations

or media moments while working for a

non-specified service trade or business

employer do not trigger specified service

trade or business classification. The commenter also recommended that the final

regulations clarify whether a person who

is not “well-known” and working for a

non-specified service trade or business

employer at an event may nevertheless

trigger tip disqualification if they make an

incidental specified service trade or business “appearance.”

The deduction for qualified tips is a

newly enacted provision and taxpayers

receiving tips in 2025 are determining

their eligibility for the deduction for the

first time. As stated in Notice 2025-69,

the Treasury Department and the IRS

understand that it may be difficult for

taxpayers to determine whether their tips

were received in the course of a specified service trade or business. This may

be particularly difficult for employees,

since section 224(d)(2) provides that this

determination turns on whether the trade

or business of their employer in the course

of which they receive tips is a specified

service trade or business. In light of these

considerations, Notice 2025-69 provided

transition relief for taxpayers regarding

the requirement that qualified tips must

not be received in the course of a specified

service trade or business. In the interest of

sound tax administration, Notice 2025-69

provided a transition period for purposes

of IRS enforcement and administration

with regard to the specified service trade

or business requirement. Specifically, the

Notice stated that, until January 1 of the

first calendar year following the issuance

of final regulations regarding the determination of whether a trade or business

is a specified service trade or business

for purposes of section 224 and associated employer information reporting, the

IRS will treat taxpayers (both employees

and self-employed individuals) as having received tips in the course of a trade

or business that is not a specified service

trade or business if the taxpayer is in an

occupation that customarily and regularly

received tips on or before December 31,

Bulletin No. 2026–18

2024, as provided by the Secretary. The

Notice further provided that the Treasury

Department and the IRS intend to issue

proposed regulations and solicit public

comment on these issues before publishing final regulations. The final regulations

do not address the specified service trade

or business exclusion under section 224,

but subsection (g) of § 1.224-1 is reserved

for guidance on this exclusion.

7. Comments Concerning Amounts

Received for Illegal Activities,

Pornography, and Prostitution

The proposed regulations would have

provided that any amount received for

a service the performance of which is a

felony or misdemeanor under applicable

law is not a qualified tip. The proposed

regulations would have further excluded

from the definition of qualified tips, any

amount received for prostitution services

and any amount received for pornographic

activity.

Some commenters supported these

exclusions, and one commenter requested

that this exclusion be expanded to include

amounts paid to strippers, exotic dancers,

or other sexually suggestive performers who dance solely for the purposes of

provocation. Several other commenters

objected to the exclusions, arguing that

the Treasury Department and the IRS lack

authority to impose these restrictions. In

addition to noting that certain pornography is legal, some commenters stated that

pornography is protected First Amendment speech, that these businesses pay

taxes, and that in fairness these businesses

and their employees should have access

to the deduction for qualified tips. One

commenter suggested the prohibition be

limited to activity that is unlawful under

State or Federal law. Several commenters

requested that the regulations define pornographic activity.

Section 224(d)(2)(C) provides an

amount received by an individual is not

a qualified tip unless “such other requirements as may be established by the Secretary in regulations or other guidance are

satisfied.” The exclusion from qualified

tips for illegal activities, prostitution services, and pornographic activities falls

under the authority granted to the Treasury Department and the IRS in section

Bulletin No. 2026–18

224(d)(2)(C) and (g), and these provisions

remain unchanged in the final regulations.

This exclusion is intended to address the

potential for greater noncompliance and

abuse with respect to these activities and

services. The Treasury Department and

the IRS will consider whether to provide

additional guidance regarding these exclusions.

One commenter noted that State-legal cannabis industry workers operate in

regulated, State-compliant industries and

should not be excluded merely because

their employers engage in commerce that

involves a federally classified controlled

substance. Workers in the cannabis industry must meet statutory and regulatory

requirements like any other employee to

be eligible for the deduction for qualified tips. Tips received by these workers

must be received in an occupation that is

included on the List of Occupations that

Receive Tips and must not be received for

a service the performance of which is a felony or misdemeanor under applicable law,

including under Federal law, to be qualified tips eligible for the deduction under

section 224. Currently, Federal law and

many State laws generally make it unlawful to manufacture, distribute, dispense, or

possess marijuana. If Federal law changes,

making certain marijuana-related transactions legal, and those same transactions

are legal under State law, then tip amounts

received in such transactions may be qualified tips if all other requirements for qualified tips are met. No change was made in

the final regulations in response to this

comment.

8. Anti-Abuse Rules

Section 224(g) provides that, “[t]he

Secretary shall prescribe such regulations

or other guidance as may be necessary to

prevent reclassification of income as qualified tips, including regulations or other

guidance to prevent abuse of the deduction allowed by this section.” Under this

authority and to prevent reclassification of

income as qualified tips and other abuses,

the proposed regulations would have provided that a payment is not a qualified tip

if the tip recipient has an ownership interest in or is employed by the payor of the

tip. Further, section 224(d)(2)(A) defines

“qualified tips” as amounts that are, among

853

other things, “determined by the payor.”

The proposed regulations would have reiterated this rule as part of the requirement

that qualified tips be voluntary.

Several commenters suggested providing additional rules to prevent recharacterization of non-tip income to tip income.

One commenter noted that the regulations contain no bright-line anti-abuse

tests, specific prohibitions, or illustrative

examples that delineate permissible versus impermissible practices and suggested

there should be a bright line test that triggers disallowance. Another commenter

suggested broadening the definition of

qualified tips under the proposed regulations to include an anti-recharacterization provision that states that an amount

is not a “qualified tip” if, based on all the

facts and circumstances, it represents an

arrangement to replace or suppress wages,

or attempts to reclassify service charges

or wages as tips for the purpose of obtaining the deduction. Another commenter

asked that “tips” or gratuities be very

specifically defined so that performance

bonuses for professional services are not

included. One commenter recommended

concrete standards, evidentiary benchmarks, or examples that would deter artificial recharacterization, guide audit selection procedures, and state what indicators

auditors would look for and what type of

documentation would be required.

Other commenters suggested modifications to the rule prohibiting qualified

tips from being paid to individuals with

an ownership interest in the payor and to

employees of the payor. One commenter

suggested that an example of a non-abusive situation in which an employee’s

employer is the payor of a tip would be

when an employee is employed by two

unrelated employers, one for a tipped

occupation and one for a non-tipped

occupation, and the employer for the

non-tipped occupation tips the employee

for services provided by the employee in

the tipped occupation. The commenter

suggested that the final regulations limit

the rule by providing a narrow definition

of “ownership interest” that excludes de

minimis or incidental holdings, and by

limiting the application of the rule to situations where the tipped worker knows, or

reasonably should know, that the ultimate

source of funds is their employer.

April 27, 2026

The Treasury Department and the IRS

agree that additional clarity on the prohibition against reclassification of income as

qualified tips would be helpful. To that end,

the final regulations replace the provision

prohibiting ownership in or employment

by a payor with a provision stating that

an amount is not a qualified tip, and thus

not eligible for the deduction if, based on

all relevant facts and circumstances, the

amount represents a recharacterization of

wages or payments for goods or services

for purposes of claiming the deduction.

The final regulations further provide that

facts and circumstances that may indicate

a recharacterization of wages, payment for

services, or other income as tips include:

• A charge for services provided in an

invoice is less than the payment from

the payor shown on a related receipt

or information return, and the cash

tip reported on the receipt or information return is in an amount that

approximates the difference between

the charge amount on the invoice and

payment amount on the receipt or

information return; and

• A significant shift in historical tipping

or payment practices between the

payor and the tip recipient.

In addition, the final regulations provide that if the following facts and circumstances are present, there is an irrebuttable

presumption that the amount paid reflects

a recharacterization of wages, payment

for services, or other income as tips, and

therefore cannot be a qualified tip:

• The employer of an employee is the

payor, as defined in § 1.224-1(c)(5)

of the final regulations, of a cash tip

received by the employee.

• The tip recipient has a direct ownership interest in the payor, as defined

in § 1.224-1(c)(5) of the regulations,

of a cash tip.

The final regulations define ownership

interest to mean, in the case of a corporation, ownership (by vote or value) of

five percent or more of the stock in such

corporation; in the case of a partnership,

ownership of five percent of the profits

interest or capital interest in such part-

nership, or in any other case, ownership

of more than five percent of the beneficial interests in the entity. An ownership

interest is tested as of the date the tip is

received. The final regulations also provide that an ownership interest is a direct

ownership interest if it is an ownership

interest held directly by the tip recipient or if it is an ownership interest held

through an entity disregarded as separate from its owner for Federal income

tax purposes; an ownership interest held

through a qualified subchapter S subsidiary as defined in section 1361(b)(3)

of the Code; an ownership interest held

through a grantor trust (under subpart E

of part 1 of subchapter J of charter 1 of

the Code); or an ownership interest held

through a custodian, broker, nominee,

agent, or other similar intermediary.

Because of its potential for abuse,

the final regulations provide no specific

exceptions for the situation in which an

employee has more than one employer,

and the employer unrelated to the tipped

occupation provides a tip to the employee.

Per the suggestion that “tips” be very

specifically defined, the final regulations

adopt the definition of tips from the proposed regulations. Under this definition,

tips are amounts paid by customers for

services that are in excess of the amount

agreed to, required, charged, or otherwise

reasonably expected to have to be paid for

the services in an arm’s-length transaction. An amount that meets this definition

(whether labeled as a performance bonus

for services or otherwise) is a tip for purposes of the deduction under section 224.

Whether the tip is a qualified tip depends

on whether the other requirements under

section 224 and these final regulations are

satisfied. Concerning the audit selection

procedure suggestions, as noted earlier,

audit selection and other IRS enforcement

procedures are beyond the scope of these

regulations.

One commenter requested confirmation that a tip received directly from a

customer by a single-member limited liability company (LLC) or sole proprietor

will not be disallowed merely because

the entity could be viewed as making

the payment to the individual owner. In

response to this comment, and to provide

clarity concerning who is considered the

payor of a tip, the final regulations define

the term “payor” as the ultimate recipient of the services which, in most cases,

is the customer, client, or other service

recipient. The final regulations further

clarify that an entity, such as an employer,

a third party settlement organization, or

a sole proprietorship or single-member

LLC through which a tip recipient is

doing business, that acts merely as conduit to remit a tip initially paid by a customer, client, or service recipient to the

tip recipient, is not a payor of the tip for

purposes of these regulations. Finally, the

final regulations clarify that statements

furnished to a sole proprietorship or a

single-member LLC that does not elect

to be treated as a corporation for income

tax purposes owned by a tip recipient

are considered to be furnished to the tip

recipient owner of the sole proprietorship or single-member LLC to which

the statement was issued, regardless of

whether the name of the sole proprietorship or single-member LLC appears as

the recipient on the statement.17

9. Tip-Sharing Arrangements

Section 224(d)(3) defines cash tips to

include “tips received under any tip-sharing arrangement.” Consistent with this

definition, the proposed regulations would

have defined cash tips to include “tips

received from customers or, in the case of

an employee, through a mandatory or voluntary tip-sharing arrangement, such as a

tip pool.”

Some commenters requested more

guidance on tip-sharing arrangements.

One commenter asked that the final regulations distinguish between a voluntary

customer tip received by an employee, a

mandatory service charge imposed by the

employer, and an employer-mandated tip

pool that redistributes tips. The definition

of cash tips in the proposed regulations

would have included both tips received

Form W-9, Request for Taxpayer Identification Number and Certification, instructs both sole proprietorships and single-member LLCs (not treated as a corporation) to include the individual name of the owner on line 1. Therefore, if the payee completes Form W-9 correctly, and the payor correctly uses the info on Form W-9 to complete the appropriate Form 1099, then the

individual’s name should appear on the Form 1099. However, this rule is intended to clarify that if the instructions change or if the form is incorrectly filled out and includes only the business

name, the reporting statement is still considered to be issued to the owner of the sole proprietorship or single-member LLC.

<?>7

April 27, 2026

854

Bulletin No. 2026–18

through “a mandatory or voluntary

tip-sharing arrangement,” and this is consistent with the broad statutory language

that defines cash tips to include tips

received under any tip-sharing arrangement. The final regulations contain similar language with nonsubstantive revisions.

One commenter asked for more guidance concerning staff who participate in

tip-sharing arrangements but who may

not be listed specifically in the List of

Occupations that Receive Tips. The

Treasury Department and the IRS considered the language in section 224(d)

(3) to indicate that, for purposes of the

deduction for qualified tips under section 224, there is no distinction between

employees in occupations receiving tips

directly from customers and employees

in occupations receiving tips through

tip-sharing arrangements with other

employees. However, the employee must

still receive the tips in an occupation that

customarily and regularly received tips

on or before December 31, 2024. Participation in a tip-sharing arrangement

by itself is not sufficient. The employee

must also be in an occupation on the List

of Occupations that Receive Tips, and all

other statutory and regulatory requirements must be met. No additional language was added to the final regulations

to address this comment.

A few commenters were concerned

about State laws on tip-sharing arrangements such as tip pooling. One commenter wanted the regulations to clarify

that employees on the List of Occupations that Receive Tips are eligible for

the deduction, even if they work in a

State that prohibits or restricts tip pooling. Another commenter requested that

the regulations provide that they preempt

State laws concerning tip pooling. Nothing in section 224 prohibits an individual

from claiming the deduction because of

State law involving tip-sharing arrangements such as tip pooling. However, section 224 is a Federal income tax deduction. It does not impact Federal or State

laws concerning tip-sharing arrangements. Since these rules are a function

of existing laws and outside the scope of

these regulations, no language was added

to the final regulations concerning this

comment.

Bulletin No. 2026–18

10. Married Individuals and Social

Security Numbers

Section 224(b)(1) limits the deduction for qualified tips to an amount not to

exceed $25,000 in a taxable year. Section

224(b)(2) further limits the amount of the

deduction based on a taxpayer’s modified

adjusted gross income, with the deduction

phasing out for taxpayers with modified

adjusted gross income over $150,000

($300,000 for joint filers). Section 224(f)

provides that if the taxpayer is a married

individual within the meaning of section

7703, section 224 applies only if the taxpayer and the taxpayer’s spouse file a joint

return for the taxable year.

Reflecting these statutory provisions,

the proposed regulations would have provided that the total amount of qualified

tips that can be deducted on a return per

calendar year is $25,000, regardless of

filing status. After applying the $25,000

limitation, the proposed regulations would

have provided that the amount is subject

to the phase-out based on the taxpayers’

modified adjusted gross income described

in section 224(b)(2). Finally, the proposed

regulations would have provided that taxpayers who are married must file a joint

return to claim the deduction allowed by

section 224.

Several commenters asserted that the

$25,000 maximum annual deduction

should apply per spouse on a joint return.

They argued that limiting the deduction

to $25,000 in this instance penalizes

married individuals and unfairly disadvantages joint filers when both spouses

work in tipped occupations. These commenters also noted that households with

two tipped workers face higher work-related costs and should have a higher cap.

At least one commenter agreed with the

position in the proposed regulations that

the maximum deduction should be limited to $25,000 per return, regardless of

filing status.

Section 224(b)(1) limits the amount

of the deduction to $25,000 for any

taxable year, without reference to filing status. Consistent with this statutory language, the final regulations

maintain the position of the proposed

regulations that the maximum annual

deduction for an individual or a joint

return is $25,000.

855

One commenter asked that the IRS

consider indexing this threshold to

updated cost-of-living and inflation factors or increasing the threshold outright to

$200,000/$300,000 to ensure the deduction effectively benefits the intended middle-class earners and families. Because

such indexing is not provided for in

section 224, the final regulations do not

include this suggestion.

One commenter opposed requiring

married individuals to file jointly in order

to be eligible for the deduction. Because

section 224(f) requires married individuals to file jointly in order to be eligible for

the deduction, the final regulations retain

this rule.

In accordance with section 224(e), the

proposed regulations would have provided that to claim a deduction under section 224, a taxpayer must include on the

taxpayer’s tax return a valid for work SSN

(valid SSN) that was issued before the due

date of the return (including extensions).

The proposed regulations would have

further provided that married taxpayers

are required to include the valid SSN of

the taxpayer who has received the tips to

claim the deduction, and a valid SSN is

required of both taxpayers only when both

have qualified tips for which the deduction is being claimed.

One commenter stated that the SSN

requirement risks disproportionate exclusion of immigrant and informal workers

and could incentivize underreporting or

off-the-books arrangements and suggested

providing an Individual Taxpayer Identification number (ITIN) safe harbor illustration. Another commenter said that the

IRS should not impose a requirement that

both spouses use SSNs. Finally, one commenter asked that the regulations include

easy examples showing what to do when

only one spouse receives tips and what to

keep on file if someone moves from ITIN

to SSN during the year, so they do not lose

the deduction.

The valid SSN requirements are statutory. Consistent with these statutory provisions, the final regulations contain the

same requirements as the proposed regulations. Income tax return instructions

will include information and examples

for how to claim the deduction, including how married taxpayers filing jointly

claim the deduction if just one spouse has

April 27, 2026

tip income. If a taxpayer is issued a valid

SSN for the calendar year in which the

taxpayer is claiming the deduction under

section 224, the taxpayer may use all qualified tips received in that calendar year in

determining the deduction, as long as the

taxpayer includes the valid SSN on the

taxpayer’s return for that year. The final

regulations reflect this clarification.

Another commenter suggested that

the regulations explicitly bar noncitizens

from being eligible for the section 224

deduction. Section 224(e) prohibits the

deduction unless the taxpayer’s valid SSN

is listed on the return claiming the deduction. As the proposed regulations would

have done, the final regulations include

this prohibition. However, certain noncitizens are eligible to obtain valid SSNs and

therefore would be eligible for the section

224 deduction.

11. Self-Employed Individuals

In accordance with 224(c), the proposed regulations provide that generally

for self-employed taxpayers, the deduction under section 224 for a trade or

business is limited to the individual’s net

income (without regard to the section 224

deduction) from that trade or business.

Several commenters had questions

concerning how to determine net income

for purposes of section 224(c). One commenter asked that the regulations confirm

that the deduction cannot create or increase

a loss. Another commenter requested that

the regulations explicitly state whether the

self-employed health insurance deduction, the one-half of self-employment tax

deduction, and the self-employed retirement deduction are allocable to the trade

or businesses for purposes of section

224(c). Another commenter requested

precise guidance, with illustrative examples, on how “net income” should be calculated for a sole proprietor filing Schedule C, specifically clarifying whether this

figure is before or after the deduction of

ordinary and necessary business expenses

(like booth rent, supplies, and self-employment tax).

Consistent with section 224(c), the

proposed regulations would have provided that the section 224 deduction cannot create or increase a loss. Whether any

particular deduction, such as the self-em-

April 27, 2026

ployed health insurance deduction, the

one-half of self-employment tax deduction, and the self-employed retirement

deduction, is allocable to a trade or business for purposes of section 224(c) is a

question that is beyond the scope of these

regulations. However, section 224(c) is

clear that the qualified tip deduction is

not allocable to a trade or business for

purposes of this section. For any individual performing services in a trade or business (other than as an employee), such as

a sole proprietor filing a Schedule C, the

deduction for qualified tips under section

224 for that trade or business is limited to

the amount remaining after gross income

from the trade or business, including

the qualified tips received in the course

of the trade or business, is reduced by

the deductions allocable to the trade or

business in which the tips are received,

which, in the case of a sole proprietor

filing a Schedule C, would include the

expenses deducted on the Schedule C for

that trade or business.

Some commenters had general questions about independent contractors. One

commenter stated that gig workers who

are considered independent contractors

should qualify for this deduction as the

tips are a part of the job. Another commenter asked that the regulations provide

a short example involving an independent

contractor with more than one occupation

(for example, at a salon and a separate

makeup service) to demonstrate how to

allocate tips and apply the $25,000 deduction maximum. One commenter asked

that the regulations provide formal transition relief for self-employed individuals

allowing for a “reasonable estimate” of

qualified tips received between January 1,

2025, and the publication date of the final

rule.

Gig workers can qualify for this

deduction if their occupation is on the

List of Occupations that Receive Tips

and the other statutory and regulatory

requirements of section 224 are met. The

$25,000 maximum deduction is applied

per tax return and is not applied separately to different occupations for a taxpayer, or spouses in the case of spouses

filing jointly, with multiple occupations.

Instructions for how to apply the $25,000

maximum deduction limitation when

claiming the deduction are beyond the

856

scope of these regulations but will be

provided in instructions to income tax

returns. Transition relief for individuals

claiming the deduction under section 224

in tax year 2025 is provided in Notice

2025-69. Because these comments are

addressed elsewhere in the final regulations, as well as in other guidance, no

additional changes were made to the final

regulations to address these comments.

12. Other Comments

A few commenters asked that the final

regulations address certain situations

where children receive tips. One commenter suggested that the regulations

address child digital content creators and

the deduction’s applicability as it relates

to parents claiming the income of their

social media influencer children. Another

commenter suggested rules that exclude

parents who “tip” their child’s business

with large amounts to effectively increase

gift tax (and similar tax) exemption limits. These comments are beyond the scope

of these regulations. Nothing in section

224 nor these regulations change the rules

governing the reporting and treatment of

income received by children or the rules

regarding gift taxes.

13. Severability

If any provision in this rulemaking

is held to be invalid or unenforceable

facially, or as applied to any person or

circumstance, it shall be severable from

the remainder of this rulemaking, and

shall not affect the remainder thereof, or

the application of the provision to other

persons not similarly situated or to other

dissimilar circumstances.

Applicability Dates

These regulations apply for taxable

years beginning after December 31, 2024.

As stated in the NPRM, taxpayers may

rely on the proposed regulations for taxable years beginning after December 31,

2024, and on or before the date these regulations are published as final regulations

in the Federal Register, provided that

taxpayers follow the proposed regulations

in their entirety and in a consistent manner.

Bulletin No. 2026–18

Special Analyses

I. Regulatory Planning and Review—

Economic Analysis

Executive Orders 12866 and 13563

direct agencies to assess costs and benefits of available regulatory alternatives

and, if regulation is necessary, to select

regulatory approaches that maximize net

benefits (including potential economic,

environmental, public health and safety

effects, distributive impacts, and equity).

Executive Order 13563 emphasizes the

importance of quantifying both costs and

benefits, reducing costs, harmonizing

rules, and promoting flexibility.

The final regulations have been designated by the Office of Management and

Budget’s (OMB’s) Office of Information

and Regulatory Affairs (OIRA) as subject

to review under Executive Order 12866

pursuant to the Memorandum of Agreement (MOA, July 4, 2025) between the

Treasury Department and the Office of

Management and Budget regarding review

of tax regulations. OIRA has determined

that the final rulemaking is economically

significant under section 3(f)(1) of Executive Order 12866 and subject to review

under Executive Order 12866 and section

1(c) of the Memorandum of Agreement.

Accordingly, the final regulations have

been reviewed by OMB.

Need for Regulation

Section 70201 of Public Law 119-21,

139 Stat. 72 (July 4, 2025), commonly

known as the One Big Beautiful Bill Act

(OBBBA), adds new section 224 to the

Internal Revenue Code,18 which provides

an income tax deduction for “qualified

tips” that are reported on Internal Revenue Service (IRS) returns and various

forms. The statute requires, under section

70201(h) of the OBBBA, that not later

than 90 days after the date of enactment of

OBBBA, the Secretary of the Treasury or

the Secretary’s delegate (Secretary) publish a list of occupations that customarily

and regularly received tips on or before

December 31, 2024, for purposes of defining the term “qualified tips” under section

224(d)(1).

18

The final regulations clarify the definition of “qualified tips” for purposes of the

income tax deduction under section 224.

As required by section 70201(h) of the

OBBBA, the final regulations also provide the list of occupations that customarily and regularly received tips on or before

December 31, 2024 (List of Occupations

that Receive Tips). The purpose of these

final regulations is to provide guidance

on requirements of section 224 to claim

the deduction, including the definition

of “cash tips;” the requirement for the

taxpayer to include on the tax return for

the taxable year such individual’s Social

Security number (SSN); and the requirement that if the taxpayer is married (within

the meaning of section 7703), that section

224 shall apply only if the taxpayer and

the taxpayer’s spouse file a joint return

for the taxable year. The final regulations

also clarify that the deduction is limited to

$25,000, regardless of the taxpayer’s filing

status, and that the deduction is reduced

based on the taxpayer’s modified adjusted

gross income for that taxable year after

applying the $25,000 limitation.

I. The Statute and Final Regulations

For taxable years beginning after

December 31, 2024, and before January

1, 2029, employees and self-employed

individuals may deduct qualified tips

from their gross income when calculating

their federal income tax liability. Section

224(d)(1) defines the term “qualified tips”

to mean 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.

Section 224(d)(3) defines the term “cash

tips” for the purposes of section 224(d)(1)

to include tips received from customers

that are paid in cash or charged and, in the

case of an employee, tips received under

any tip-sharing arrangement. The final

regulations clarify that “cash tips” are

amounts received, directly or indirectly,

from customers, including in the case of

an employee, tips received through a mandatory or voluntary tip-sharing arrangement, that are paid in a cash medium of

exchange, including by check, credit card,

debit card, gift card, tangible or intangible tokens that are readily exchangeable

for a fixed amount in cash (such as casino

chips), and any other form of electronic

settlement or mobile payment application that is denominated in cash. The

final regulations also clarify that, for the

purposes of section 224, cash tips also

include amounts paid in foreign currency.

Cash tips do not include items paid in any

medium other than cash or charge, such

as event tickets, meals, services, or other

assets that are not exchangeable for a fixed

amount in cash. For purposes of section

224, cash tips also do not include digital

assets as defined in section 6045(g)(3)(D)

and § 1.6045-1(a)(19).

Section 224(a) allows qualified tips to

be deducted if they are included on Form

W-2, “Wage and Tax Statement;” Form

1099-NEC, “Nonemployee Compensation;” Form 1099-K, “Payment Card

and Third Party Network Transactions;”

Form 1099-MISC, “Miscellaneous Information;” or Form 4137, “Social Security

and Medicare Tax on Unreported Tip

Income.” The final regulations clarify that

statements furnished to a sole proprietorship or a single-member LLC owned by

a tip recipient are considered furnished to

the tip recipient owner of the sole proprietorship or a single-member LLC to which

the statement was issued, regardless of

whether the name of the sole proprietorship or single-member LLC appears as the

recipient on the statement.

In addition, employees that enter a

Tipped Employee Participation Agreement as part of the IRS Tip Rate Determination Agreement (TRDA) program or

a Model Gaming Employee Tip Reporting Agreement as part of the IRS Gaming Industry Tip Compliance Agreement

(GITCA) program report their tips according to tip rates established under their

agreement (and these tips are included on

Form W-2). The final regulations clarify

that the term “qualified tips” for employees participating in the TRDA or GITCA

program includes tips reported using the

tip rates established under their agreement

and additional tips reported on Form 4137.

The final regulations clarify that the

section 224(d)(2)(A) term “qualified tips”

only includes amounts that are paid by the

References to a “section” are to a section of the Internal Revenue Code of 1986, as amended (Code), unless otherwise indicated.

Bulletin No. 2026–18

857

April 27, 2026

customer voluntarily without any impact

on the scope or cost of service or any

other consequence in the event of nonpayment, are not the subject of negotiation, and are determined by the customer.

The final regulations also clarify that the

term “qualified tips” does not include tips

that were received while performing a

service that is a felony or misdemeanor

under applicable law. (However, “qualified tips” may include tips received for

a service that is legal but while working

for an establishment that violates applicable law in other respects.) In addition,

the final regulations provide that amounts

received for prostitution services and pornographic activity are not included in the

definition of “qualified tips.” The final

regulations provide that amounts received

by a manager or supervisor through a voluntary or mandatory tip-sharing arrangement such as a tip pool are not qualified

tips, but amounts received directly by a

supervisor or manager for services provided in the course of duties performed

in an occupation included on the List of

Occupations that Receive Tips are qualified tips if all other regulatory requirements are met. The final regulations also

clarify that a payment is not considered

a “qualified tip” if, based on all relevant

facts and circumstances, the payments

represent a recharacterization of wages or

payments for services as tips for purposes

of claiming the deduction under section

224. Furthermore, the final regulations

provide that if the following facts and circumstances are present, there is an irrebuttable presumption that the amount paid

is a recharacterization of wages, payment

for services, or other income as tips, and

therefore cannot be a qualified tip: (A) the

employer of an employee is the payor of a

cash tip received by the employee; or (B)

the tip recipient has a direct ownership

interest in the payor of a cash tip.

Section 224(c) limits the deduction for

qualified tips received by a self-employed

individual to the gross income (including

the qualified tips) from their trade or business minus the sum of their deductions

(other than the deduction for qualified

tips) that are allocable to that trade or business. The final regulations clarify that the

deduction for qualified tips is not included

when calculating this limit because it is

not a trade or business deduction.

April 27, 2026

The final regulations clarify the requirement in section 224(e) that taxpayers must

include their SSN (as defined in section

24(h)(7)) on their tax return to claim the

deduction for qualified tips. Taxpayers with

an Individual Taxpayer Identification Number (ITIN) rather than an SSN will not be

able to use their tips to claim the deduction

under section 224. The final regulations

also clarify that a taxpayer must be issued

an SSN, as defined in section 24(h)(7) of

the Code, before the due date of the income

tax return (including extensions) for the

calendar year in which the taxpayer is

claiming the deduction under section 224.

Married taxpayers must include the SSN of

the taxpayer who earned the qualified tips

that are being used to claim the deduction;

if both spouses earned qualified tips for

the deduction, then they must include the

SSNs of both spouses on their tax return.

The final regulations clarify section 224(f),

which requires married individuals (within

the meaning of section 7703) to file a joint

tax return for the taxable year to claim the

deduction for qualified tips.

Section 224(b)(1) limits the deduction

for qualified tips for any taxable year to

$25,000. The final regulations clarify that

this limitation applies regardless of the taxpayer’s filing status for that taxable year.

Under section 224(b)(2)(A), the deduction

for qualified tips is reduced (but not below

zero) by $100 for each $1,000 by which the

taxpayer’s modified adjusted gross income

(MAGI) exceeds $150,000 ($300,000 in

the case of a joint return). Section 224(b)

(2)(B) defines “modified adjusted gross

income” for the purposes of this phaseout as adjusted gross income of the taxpayer for the taxable year plus any amount

excluded from gross income under section

911, section 931, or section 933. The final

regulations clarify that the phaseout based

on MAGI is applied after applying the

$25,000 limit to the deduction.

The final regulations implement

the statutory requirement from section

70201(h) of the OBBBA that the Secretary publish a list of occupations that customarily and regularly received tips on

or before December 31, 2024. For each

occupation, the list provides a numeric

Treasury Tipped Occupation Code

(TTOC), an occupation title, a description of the types of services performed

by individuals working in the occupa-

858

tion, illustrative examples of specific

occupations that would be included, and

the Standard Occupation Classification

(SOC Code) that is related to the occupation. The final regulations also clarify

that these occupations include individuals acting as assistants or apprentices to

the listed occupations to the extent they

perform the described services.

II. Baseline

The Treasury Department and the IRS

have assessed the benefits and costs of

the final regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the

absence of these final regulations.

III. Affected Entities and Taxpayers

By providing clarity to the statutory

definition of “qualified tips” and publishing the statutorily required list of occupations that customarily and regularly

received tips on or before December 31,

2024, the final regulations affect taxpayers who wish to claim the deduction for

qualified tips on their individual income

tax returns beginning in taxable year

2025. Using confidential tax return data,

the Treasury Department and the IRS estimate that, in 2026, more than 10 million

returns will have tips reported on Form

W-2, Form 1099-NEC, Form 1099-K,

Form 1099-MISC, or Form 4137.

IV. Economic Effects of the Final

Regulations

The Treasury Department and the IRS

analyzed the economic effects of the final

regulations in enumerating the list of

occupations that customarily and regularly

received tips on or before December 31,

2024, the clarification that “qualified tips”

excludes tips received while performing

services that are misdemeanors or felonies under applicable law, and the clarification that “qualified tips” for employees

under tip agreements through the TRDA

or GITCA programs include tips reported

using the tip rates established under their

agreement and additional tips reported on

Form 4137. The projected economic costs

and benefits of these final regulations are

small.

Bulletin No. 2026–18

i. List of Occupations that Receive Tips

The final regulations enumerate the

List of Occupations that Receive Tips,

as described in section 70201(h) of the

OBBBA. Providing this list will provide

clarity for taxpayers who are expected to

receive qualified tips. While these clarifications will reduce uncertainty, the Treasury Department and the IRS project that

the magnitude of the efficiency gains from

publishing these final regulations would

be small.

a. Methodology

To create the List of Occupations that

Receive Tips, the Treasury Department

and the IRS examined confidential income

tax return data from tax year 2023; data

from the GITCA and related programs;

the House Budget Committee report on

the OBBBA, H.R. Rept. No. 119-106,

at 1502 (2025); guidance and caselaw

related to the U.S. Department of Labor

(DOL) Fair Labor Standards Act (FLSA);

and survey data from the Panel Study of

Income Dynamics (PSID) for years 2017,

2019, and 2023 (which asks about the

occupation of and tip income received

by individuals in 2016, 2018, and 2022,

respectively). Based on prior guidance

under the FLSA, the Treasury Department

and the IRS determined that individuals

must have received cash tips more often

than occasionally (for example, not only

on annual holidays or other celebrations)

during a calendar year ending on or before

December 31, 2024, in order for their

occupation to be considered as having

customarily and regularly received tips on

or before December 31, 2024.

While reviewing the data, the Treasury

Department and the IRS recognized that

the occupations identified as having customarily and regularly received tips on or

before December 31, 2024, were in the service industry, and the individuals working

in the occupations either interacted with

the customers for whom they were providing a service or commonly participated in

tip-sharing arrangements with individuals

who interacted with customers.

The List of Occupations that Receive

Tips includes some occupations, such as

cooks and dishwashers, in which individuals may not interact with customers but

reported receiving tip income, presumably

from tip-sharing arrangements with individuals who do interact with customers.

Employees in these occupations have not

been considered to customarily and regularly receive tips under the FLSA. As discussed above, there are many differences

between the specific language, purpose,

and history of the FLSA tip provisions and

the language, purpose, and history of the

deduction for qualified tips under section

224 of the Code.19 For instance, while the

FLSA contemplates that an employee must

have some level of customer interaction to

“customarily and regularly” receive tips,20

section 224(d)(3) provides that for purposes

of the deduction for qualified tips under

section 224, “cash tips” includes both tips

received from customers and, in the case

of an employee, tips received under any

tip-sharing arrangement. As a result, occupations in which employees receive tips

from tip-sharing arrangements are considered as having “customarily and regularly”

received tips for purposes of the deduction

for qualified tips under section 224.

After identifying the occupations that

customarily and regularly received tips on

or before December 31, 2024, the Treasury

Department and the IRS created a categorization system to organize and define the

occupations for purposes of the deduction

for qualified tips. Each occupation was

assigned a TTOC, an occupation title, a

short description of the types of services

performed by individuals working in the

occupation, illustrative examples of specific occupations that would be included

under the occupation code, and the related

SOC Code(s).

b. Alternative Methods Considered

In addition to the method described

above, the Treasury Department and the

IRS considered two alternative methods

for creating the List of Occupations that

Receive Tips. These alternative methods

were (1) using the SOC Code system to

define occupations and (2) using only

the confidential income tax return data

to identify occupations that reported tips.

These alternative methods both excluded

some occupations that did customarily

and regularly receive tips on or before

December 31, 2024, and also included

some occupations that did not in reality

customarily and regularly receive tips

on or before December 31, 2024. Therefore, the approach to produce the List of

Occupations that Receive Tips included in

these final regulations was selected over

the alternatives described below.

One of the alternative methods that the

Treasury Department and the IRS considered to construct the List of Occupations

that Receive Tips was to use the occupation definitions from the SOC Code system.21 However, the Treasury Department

and the IRS determined that several of

the detailed SOC occupations were not

sufficiently detailed to separate occupations that should be included on the List

of Occupations that Receive Tips, from

those that should not. For example, the

SOC Code for “Animal Caretakers” is

described in the 2018 SOC Code system

as an occupation in which individuals

“provide care to promote and maintain

the well-being of pets and other animals

that are not raised for consumption.” The

specific occupations that are provided as

illustrative examples for this SOC Code

include both pet caretakers and zookeepers. Pet caretakers provide a service to

individual customers, personally interact

with customers, and commonly receive

tips on a frequent basis. Therefore, they

would be considered an occupation that

customarily and regularly receives tips.

Zookeepers, on the other hand, provide

a service to animals but not directly to

customers. Many, if not most, zookeepers

do not interact with zoo customers, and

zookeepers do not receive tips on a frequent basis. Zookeeper is therefore not an

See supra, “Comments on the Methodology Used to Construct the List of Occupations that Receive Tips.”

See Montano v. Montrose Rest. Assocs., 800 F.3d 186, 189-194 (5th Cir. 2015) (holding that a factfinder could determine that an employee did not “customarily and regularly receive tips,”

despite the fact that the employer included him in a tip pool).

21

The SOC Code system is published by the Executive Office of the President, Office of Management and Budget. The SOC Code system is a federal statistical standard used by Federal agencies to classify workers into occupational categories for the purposes of collecting, calculating, or disseminating data. See Office of Management and Budget. (2018). Standard Occupational

Classification Manual. U.S. Government Publishing Office. This manual and other related SOC Code documents can be found at https://www.bls.gov/soc.

19

20

Bulletin No. 2026–18

859

April 27, 2026

occupation that customarily and regularly

receives tips. Thus, if the “Animal Caretakers” SOC Code were included in the

list of occupations that customarily and

regularly receive tips, then zookeepers

would become part of the list via their corresponding SOC Code, even though they

do not customarily and regularly receive

tips. Thus, using the SOC Code system

alone was not sufficient for creating the

List of Occupations that Receive Tips.

For the method that was selected

instead of using the SOC Code system,

the Treasury Department and the IRS

created a new categorization system. The

descriptions and illustrative examples for

the occupation codes in this new system

often mirror their SOC Code counterparts,

and it includes the SOC Code(s) that are

related to each TTOC occupation. Of the

867 detailed SOC Codes in the 2018 SOC

Code system, 77 are related to at least one

TTOC occupation.

A second alternative method that the

Treasury Department and the IRS considered was to use only confidential income

tax return data to identify occupations that

customarily and regularly received tips on

or before December 31, 2024. This data

includes reported tips from Form W-2 and

Form 4137 and the occupation that the

taxpayer (the primary filer and, if married

filing jointly, the spouse) self-reports next

to their signature on Form 1040. Individuals in some occupations, such as rideshare drivers, often operate as independent

contractors rather than employees and do

not receive Form W-2 or file Form 4137.

Thus, using only the income tax return data

would have omitted these occupations,

even though individuals in such occupations did in fact regularly and customarily receive tips on or before December

31, 2024. In addition, the analysis of the

income tax return data may have incomplete information on certain occupations

due to variations in how taxpayers choose

to self-report their occupation on Form

1040. For example, the self-reported occupation may have typos or abbreviations, or

taxpayers may write multiple occupations

separated by a comma or a slash mark,

like “Occupation 1/Occupation 2.”22 These

variations in how taxpayers reported their

occupation on Form 1040 made it difficult

for the data analysis to capture all taxpayers with a given occupation (in the sense

of what job they actually performed, rather

than what they wrote on the Form 1040)

together. This was particularly problematic

for certain occupations that have more variations in how they were reported.

Due to these limitations, the Treasury Department and the IRS rejected

the method of only using the tax return

data to create the List of Occupations

that Receive Tips. Instead, the tax return

data was supplemented with data from the

GITCA and related programs; the House

Budget Committee report on the OBBBA,

H.R. Rept. No. 119-106, at 1502 (2025);

guidance and caselaw related to the DOL

FLSA; and survey data from the PSID.

c. Statistics on Reported Tip Income in

Tax Return Data

Table A below contains the List of

Occupations that Receive Tips and statistics on their reported tip income. The table

is organized by Treasury Tipped Occupation Code (TTOC) and contains the TTOC

Occupation Title and the Related Standard Occupation Classification (SOC)

Code(s) (Related SOC Code(s)). (As previously described, the List of Occupations

that Receive Tips in Table 1 of the final

regulations also includes descriptions

and illustrative examples of each TTOC

occupation.) Table A summarizes taxpayer information from Tax Year 2023 on

employees who have a single job, meaning

they received only one Form W-2; did not

file Schedule C, “Profit or Loss from Business (Sole Proprietorship),” or Schedule

F, “Profit or Loss From Farming;” and did

not have non-passive income from a partnership or an S-corporation on Schedule

E, “Supplemental Income and Loss (From

rental real estate, royalties, partnerships,

S corporations, estates, trusts, real estate

mortgage investment conduits, etc.).”23

Table A shows the percentage of individuals within the Related SOC Code(s)24

who have at least $100 of tips reported on

Form W-2 or Form 4137. For example,

82.8 percent of individuals who had the

SOC Code related to the TTOC Occupation Title of “Bartenders” had at least

$100 of tips reported on Form W-2 or

Form 4137.

The table shows the amount of reported

tips of individuals in the Related SOC

Code(s) as a percentage of all reported

tips. The numerator of the percentage is the

amount of reported tips of individuals in

the Related SOC Code(s) who had any tips

reported on Form W-2 or Form 4137. The

denominator is the amount of reported tips

of all individuals, regardless of whether

their occupation could be mapped to a

SOC Code or if their SOC Code is related

to a TTOC. For example, 34.3 percent of all

reported tips are from individuals who had

the SOC Code related to the TTOC Occupation Title of “Wait Staff.”

Lastly, Table A shows reported tips as a

percent of wage compensation for individuals in Related SOC Code(s) who had reported

tips. Wage compensation is the sum of

wages, tips, and other compensation reported

in Box 1 of Form W-2 and unreported tips

from line 4 of Form 4137. For example,

among individuals with SOC Codes related

to the TTOC Occupation Title of “Gambling

Dealers” who had reported tips on Form W-2

or Form 4137, reported tips were 70.7 percent of wage compensation.

Taxpayers have a single line to report their occupation on the Form 1040. If they have multiple occupations, they may write the occupation for only one of their jobs or they may write

multiple occupations. However, when analyzing the tax return data, it would be difficult to determine to which job any reported tips should be assigned when a taxpayer has multiple jobs.

Therefore, the Treasury Department and the IRS limited the main analysis of the tax return data to taxpayers with only one job. However, even among this sample, some taxpayers may write

both the occupation from their job and a title for a role where they may not receive income, such as “Student/Occupation.”

23

Since tips are reported separately from other compensation for employees but not for the self-employed in the current tax return data, these screening criteria that limit the sample to employees with a single job were utilized to better illuminate the link between the self-reported occupations and reported tips.

24

Table A shows statistics based on the Related SOC Code(s), not on the TTOC, which may differ from the Related SOC Code(s). For example, the statistics listed under TTOC 506 (Pet and

Show Animal Caretakers) shows the statistics for all taxpayers in the Related SOC Code 39-2021 (Animal Caretakers), including taxpayers whose occupations are not included in TTOC

506, such as zookeepers. As described in the preamble to the proposed regulations, some SOC Codes were narrowed in the creation of the TTOC occupation. Certain occupations grouped in

the same SOC Code with non-tipped occupations were segregated from these non-tipped occupations and provided their own TTOC occupation category. Therefore, the lower percentages

for certain TTOC occupation categories may be because the data on the percentage of individuals reporting tips is for the wider related SOC Code, not for the narrower TTOC occupation.

In addition, that data included in Table A reflects only data for employees and does not provide tipping data for independent contractors. The lack of representation for tipped independent

contractors may skew the percentage of individuals reporting tips lower in certain occupations.

22

April 27, 2026

860

Bulletin No. 2026–18

Table A: Reported Tips of Single-Job Holders, Tax Year 2023

Treasury

Tipped

Occupation

Code (TTOC)

Percent

Reported Tips

Percent with

of All

as Percent of

Reported

Reported Wages of Tipped

1

Tips

Tips2

Workers3

TTOC Occupation Title

Related Standard

Occupational

Classification Code

(Related SOC Code)

Beverage & Food Service

101

102

Bartenders

Wait Staff

Food or Beverage Servers,

Nonrestaurant

Dining Room and Cafeteria Attendants

and Bartender Helpers

82.8

74.5

9.8

34.3

63.4

63.5

35-3011

35-3031

30.4

0.1

33.0

35-3041

38.9

1.0

44.8

35-9011

105

Chefs and Cooks

12.8

2.0

17.1

106

Food Preparation Workers

21.4

3.3

33.5

107

108

Fast Food and Counter Workers

40.1

Dishwashers

11.0

Host Staff, Restaurant, Lounge, and

46.3

Coffee Shop

Bakers

12.0

Entertainment & Events

1.4

0.1

17.9

15.8

35-1011, 35-2011,

35-2013, 35-2014,

35-2019

35-1012, 35-2021,

35-9099

35-3023

35-9021

0.8

35.3

35-9031

0.1

14.7

51-3011

Gambling Dealers

70.9

4.3

Gambling Change Persons and Booth

78.0

0.4

Cashiers

Gambling Cage Workers

37.6

0.2

Gambling and Sports Book Writers

30.0

*

and Runners

Dancers

8.8

*

Musicians and Singers

2.9

*

Disc Jockeys, Except Radio

15.7

*

Entertainers and Performers

7.9

*

Digital Content Creators

7.9

*

Ushers, Lobby Attendants, and Ticket

3.1

*

Takers

Locker Room, Coatroom, and Dressing

12.0

*

Room Attendants

Hospitality & Guest Services

70.7

39-3011, 39-1013

64.8

41-2012

57.7

43-3041

43.3

39-3012

54.3

36.8

44.9

52.0

52.0

27-2031

27-2042

27-2091

27-2099

27-2099

11.6

39-3031

19.1

39-3093

Baggage Porters and Bellhops

Concierges

Hotel, Motel, and Resort Desk Clerks

Maids and Housekeeping Cleaners

18.6

11.7

42.8

10.6

39-6011

39-6012

43-4081

37-2012

103

104

109

110

201

202

203

204

205

206

207

208

209

210

211

301

302

303

304

Bulletin No. 2026–18

7.0

3.7

11.7

2.7

861

0.1

*

0.7

0.1

April 27, 2026

Treasury

Tipped

Occupation

Code (TTOC)

Percent

Reported Tips

Percent with

of All

as Percent of

Reported

Reported

Wages

of Tipped

Tips1

Tips2

Workers3

TTOC Occupation Title

Related Standard

Occupational

Classification Code

(Related SOC Code)

Home Services

401

402

403

404

405

406

407

408

409

501

502

503

504

505

506

507

508

509

510

601

602

603

604

605

606

607

608

609

610

611

0.5

0.1

16.1

49-9071, 49-9098,

49-9099, 49-9063,

49-2097, 51-7021

0.5

*

14.0

37-3011

0.1

0.2

*

*

10.6

5.1

47-2111

47-2152

0.2

*

4.0

49-9021

1.8

*

1.9

49-9031

0.1

*

*

10.6

3.1

10.8

37-2012

49-9094

49-3023, 53-3032

Personal Care and Service Workers

0.6

0.1

Private Event Planners

6.6

0.1

Private Event and Portrait

2.3

*

Photographers

Private Event Videographers

*

*

Event Officiants

0.2

*

Pet and Show Animal Caretakers

19.1

0.3

Tutors

0.5

*

Nannies and Babysitters

0.7

*

Visual Artists

3.3

*

Floral Designers

4.3

*

Personal Appearance & Wellness

31.1

18.0

31-1122, 39-9099

13-1121

22.0

27-4021

*

16.8

16.2

34.5

28.8

28.4

7.4

27-4031

21-2011

39-2021

25-3041

39-9011

27-1013

27-1023

Skincare Specialists

Massage Therapists

Barbers, Hairdressers, Hairstylists, and

Cosmetologists

Shampooers

Manicurists and Pedicurists

Eyebrow and Eyelash Technicians

Makeup Artists

Exercise Trainers and Group Fitness

Instructors

Tattoo Artists and Piercers

Tailors

Shoe and Leather Workers and

Repairers

Home Maintenance and Repair

Workers

Home Landscaping and

Groundskeeping Workers

Home Electricians

Home Plumbers

Home Heating and Air Conditioning

Mechanics and Installers

Home Appliance Installers and

Repairers

Home Cleaning Service Workers

Locksmiths

Roadside Assistance Workers

April 27, 2026

2.7

2.0

0.2

Personal Services

54.7

55.8

0.5

0.6

24.4

25.7

39-5094

31-9011

52.4

3.2

22.7

39-5012, 39-5011

*

36.2

53.2

13.1

*

0.3

3.0

*

*

14.9

22.6

14.8

39-5093

39-5092

39-5012

39-5091

1.0

*

25.8

39-9031

11.1

0.8

*

*

15.8

15.9

27-1019

51-6052

*

*

*

51-6041

862

Bulletin No. 2026–18

Treasury

Tipped

Occupation

Code (TTOC)

Percent

Reported Tips

Percent with

of All

as Percent of

Reported

Reported

Wages

of Tipped

Tips1

Tips2

Workers3

TTOC Occupation Title

Related Standard

Occupational

Classification Code

(Related SOC Code)

Recreation & Instruction

701

702

703

704

705

706

Golf Caddies

8.0

Self-Enrichment Teachers

1.9

Recreational and Tour Pilots

*

Tour Guides

14.2

Travel Guides

13.3

Sports and Recreation Instructors

1.9

Transportation & Delivery

801

Parking and Valet Attendants

Taxi and Rideshare Drivers and

Chauffeurs

Shuttle Drivers

Goods Delivery People

Personal Vehicle and Equipment

Cleaners

Private and Charter Bus Drivers

Water Taxi Operators and Charter Boat

Workers

Rickshaw, Pedicab, and Carriage

Drivers

Home Movers

Gas Pump Attendant

802

803

804

805

806

807

808

809

810

Total

*

*

*

*

*

*

27.9

7.5

*

17.1

16.2

7.5

39-3091

25-3021

53-2012

39-7011

39-7012

25-3021

17.4

0.1

21.5

53-6021

24.9

*

21.2

53-3054

16.7

3.7

0.1

0.5

28.0

30.0

53-3053

53-3031

4.8

*

12.4

53-7061

0.7

*

9.9

53-3052

*

*

*

53-5022

0.8

*

21.4

53-6099

2.5

0.7

2.8

*

67.54

32.8

15.4

44.6

53-7062

53-6031

Notes: Data are for Tax Year 2023. An * indicates a share of less than 0.1% or a small cell size.

1

Percentage of individuals within the Related SOC Code(s) who have at least $100 of tips reported on a Form W-2 or Form 4137

(“reported tips”).

2

Reported tips of individuals in Related SOC Code(s) as a percentage of all reported tips. The denominator includes all

individuals regardless of whether their occupation could be mapped to a SOC Code or if their SOC Code is related to a TTOC

code.

3

Reported tips of individuals in Related SOC Code(s) as a percentage of wages of individuals with tips in Related SOC Code(s).

The denominator includes wages of individuals in Related SOC Code(s) only if they report tips.

4

Occupation codes are matched to SOC Codes, which are then related to TTOC Occupation Titles, using the self-reported

character strings in the “Your occupation” box next to the signature box on the Form 1040. The occupation box does not affect

a taxpayer’s tax liability, and taxpayers with a single Form W-2 sometimes enter an occupation (character string) that does not

correspond to the Form W-2. For example, a student who was also a bartender might have entered “Student” in the occupation

box, or they may have misspelled “bartender” as “batrender”. In either case, we would not be able to match the “Student” or

“batrender” who received tips to a TTOC code. These data shortcomings are the primary reason that the percentage of all reported

tips for occupations listed in the table sum to only 67.4%.

Source: Office of Tax Analysis, December 18, 2025

Bulletin No. 2026–18

863

April 27, 2026

d. Economic Effects

ii. Illegal Activity

In general, OBBBA granted taxpayers

the deduction for income earned in the

form of qualified tips. In the absence of

the list enumerated by these final regulations, two taxpayers with otherwise similar tax situations would face uncertainty

as to whether this tax deduction applies

to their situation. In the absence of this

guidance, these taxpayers might make

different choices as to whether their tips

qualify for the deduction, and, therefore,

face different tax liability. By enumerating

the List of Occupations that Receive Tips,

these final regulations ensure that these

two taxpayers face the same tax treatment.

Consider an example, where Employee

A is a hairstylist and Employee B is a

makeup artist, both working at Beauty

Salon 1. Employee A and Employee B

each receive $10,000 in tips from customers at Beauty Salon 1. The House Budget

Committee report on the OBBBA, H.

Rept. 119-106, at 1502 (2025) included

hairstylists but not makeup artists in its

examples of occupations that traditionally and customarily25 received tips on or

before December 31, 2024. Thus, prior

to reading the guidance in these final

regulations, Employee B might have

been unsure whether their occupation as

a makeup artist makes them eligible to

claim the deduction for their qualified tips.

By enumerating this list, Employee A and

Employee B have clarity that they are both

eligible to use the $10,000 in tips that they

receive while working at Beauty Salon 1

for purposes of the deduction in section

224 (assuming that all other requirements

to claim the deduction are satisfied).

Some taxpayers may reclassify their

occupation as described on their Form

1040 to fall under a category that appears

on the List of Occupations that Receive

Tips. This reclassification would merely

be a relabeling of their reported occupation and does not constitute a meaningful

economic change. Due to the tax preference granted by the statute, some taxpayers may genuinely change occupations to

one which appears on the List of Occupations that Receive Tips. This effect is

ascribed to the statute.

The final regulations clarify that

the term “qualified tips” does not

include tips that were received while

performing a service that is a felony

or misdemeanor under applicable law.

For example, tips received while performing services in human trafficking,

exotic pet smuggling, counterfeiting or

fencing stolen goods, drug trafficking,

drug dealing, and unlicensed sales that

violate the applicable law would not be

eligible for the deduction for qualified

tips. The Treasury Department and the

IRS do not have sufficient data to determine the behavioral effects of the clarification that the tips are excluded from

the definition of “qualified tips” if they

were earned while performing illegal

activities. The Treasury Department and

the IRS also do not have readily available data and models to assess the economic costs and benefits of excluding

these tips from the definition of “qualified tips,” but the economic impact is

expected to be low.

For example, consider Employee C

who works as a bartender but does not

have the license or certification that is

required based on the applicable laws,

and these laws specify that serving alcohol without a license is a misdemeanor.

They receive $10,000 in tips during the

year while serving alcohol at a bar. “Bartender” is on the List of Occupations that

Receive Tips, but serving alcohol as a

bartender without the proper license violates the applicable law. Because the final

regulations clarify that the definition of

“qualified tips” excludes tips received

while performing services that violate

the applicable law, Employee C is aware

that their $10,000 in tips received while

serving alcohol without a license are not

qualified tips, and so they cannot claim

the deduction for these tips.

Alternatively, consider a different

example where Restaurant 2 includes a

bar that serves alcohol but does not have

the liquor license required by the applicable laws. Employee D works on the

wait staff at Restaurant 2 and does not

serve alcohol, which the applicable laws

allow. Employee D receives $10,000 in

tips while waiting tables at Restaurant

2. They satisfy all other requirements to

claim the deduction under section 224.

Because the final regulations clarify that

“qualified tips” exclude tips received

while performing services that are illegal

under applicable law, and the services that

Employee D provided as a wait person

were legal, Employee D understands that

their $10,000 in tips are considered “qualified tips” and they can claim the deduction accordingly.

The clarification in the final regulations, that tips are not considered “qualified tips” if they were received while

performing services that are illegal under

applicable law, provides clarity for taxpayers about whether their tips qualify for

the tax deduction under section 224, as

instituted by the OBBBA.

iii. Employees Participating in Voluntary

Tip Reporting Programs with Tip Rates

The final regulations clarify that

employees who enter into a tip agreement

through the TRDA or GITCA program

may determine the amount of their qualified tips using applicable tip rates in their

agreement (as these tips are reported on

Form W-2), as well as amounts reported

to the IRS on Form 4137. This would

not affect the behavior of employees in

agreements under the TRDA or GITCA

programs as they are required to report

their tips (regardless of whether they are

eligible for the deduction under section

224) u

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