IRS Proposes No Tax on Tips Rule and Schedules Public Hearing

What: On September 22, 2025, the IRS proposed a rule implementing the “no taxes on tips” provision of the One, Big, Beautiful Bill Act (OBBBA). 

Why: The proposed rule allows a federal income tax deduction for “qualified tips” received by eligible workers in tax years 2025-2028.  The deduction is limited to $25,000 per year and applies retroactively to tips earned beginning January 1, 2025.

The list of eligible occupations includes:

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

A “qualified tip” must meet the following qualifications:

  • Voluntary and not subject to negotiation. Qualified tips do not include some service charges, such as automatic tipping for large parties. 
  • Received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool.
  • Paid in cash or an equivalent medium, such as check, credit card, debit card, gift card, tangible or intangible tokens.

Action(s):

  • Comments are due on October 22, 2025. Read the proposed rule and submit comments.
  • Advocacy seeks feedback on the numbers and the industries of small entities in these occupations, both small businesses and self-employed businesses.  We also seek feedback on the economic impact and compliance costs of this rule, such as regulatory familiarization, paperwork burdens, training costs, etc.  Advocacy is also asking for feedback on regulatory alternatives that minimize these costs.  
  • IRS has scheduled a public hearing for October 23, 2025, at 10 AM ET, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, D.C. To testify in person at the public hearing, send an email to publichearings@irs.gov to have your name added to the building access list. Requests to attend the public hearing must be received by 5 PM ET on October 21, 2025.

PROPOSED RULE:

Occupations That Customarily and Regularly Received Tips; Definition of Qualified Tips

CONTACT:

Janis Reyes

EMAIL:

janis.reyes@sba.gov

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Is your small business or entity being impacted by a proposed rule? If yes, write a comment letter to the proposing agency.