04 September 2025 Treasury releases preliminary list of occupations that will qualify for the tip deduction
The Treasury Department has released a preliminary list of the occupations that will qualify for the new federal deduction for tips enacted in the "One Big Beautiful Bill Act" (P.L. 119-21, OBBBA) for tax years 2025 through 2028. Treasury said the official proposed list of occupations will be part of forthcoming proposed regulations, but that Treasury and the IRS anticipate that list to be "substantially the same" as the preliminary list. When the proposed regulations are published in the Federal Register, Treasury will request public comments on the list. The OBBBA created new IRC Section 224, which allows a federal income tax deduction for qualified tips of up to $25,000 for both employees and independent contractors for tax years 2025 through 2028. The deduction is available to itemizers and non-itemizers and begins to phase out for adjusted gross income (AGI) over $150,000 ($300,000 joint) (see Tax Alert 2025-1476). Qualified tips are defined as any cash tip received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided by Treasury. While the OBBBA did not include this list, Treasury was directed to publish a list of these occupations within 90 days of the OBBBA's enactment. The OBBBA also specified that tips do not qualify for the deduction if they are received by an individual in the course of certain trades or businesses, including health care, performing arts and athletics. Treasury said it plans to issue additional guidance clarifying these exempted occupations. Under the OBBBA, cash tips and the individual's occupation must be reported on certain Forms 1099 and on Form W-2 beginning with calendar year 2025. The IRS announced that it will not update 2025 individual information returns/statements (Forms W-2/1099) or withholding tables to reflect those changes and that the reporting will apply beginning with Forms W-2 due on February 1, 2027, for calendar year 2026 (see Tax Alert 2025-1671). The IRS subsequently released a draft Form W-2 and draft Form W-4 for 2026 indicating that the qualified tip amount will be reported in Box 12 and the TTOC in Box 14 (see Tax Alert 2025-1745). The preliminary list sets out the proposed list of occupations that customarily and regularly received tips on or before December 31, 2024. The list includes the TTOC that must be included on Form W-2 starting in 2026, the occupation title, the occupation description, illustrative examples, and the Related SOC Code(s). The complete list is as follows:
While the IRS will not require the new tip reporting on the 2025 Form W-2, employers might consider voluntarily providing employees with this information to assist in claiming the federal tip deduction for calendar year 2025. This current guidance concerning the TTOC and SOC that applies to tipped workers will assist employers in this process. Employers and taxpayers should take note of certain occupations that may not be front-of-mind such as digital content creators, which includes streamers, online video creators, social media influencers and podcasters. It is an increasingly common practice for these creators to receive tips from viewers looking to show appreciation and support the creator's work. When the official proposed list of TTOCs is published in the Federal Register, taxpayers may wish to submit a comment if they believe any occupations should be added or if they have questions about any occupations on the list. In addition, some employers and other taxpayers subject to this information reporting requirement may find it challenging to identify which of the approximately 70 occupations on the list applies to each of their tipped employees and may wish to submit comments suggesting less challenging reporting alternatives.
Document ID: 2025-1792 | ||||||
