The rule was quietly announced on a Monday in April. It’s the type of regulatory announcement that doesn’t go viral on social media but instead reorganizes paychecks in restaurants, salons, and taxi fleets all over the nation. The long-awaited regulations under Section 224, the so-called “No Tax on Tips” clause hidden inside the One, Big, Beautiful Bill Act that President Trump signed on July 4, 2026, were finalized by Treasury and the IRS on April 13, 2026. If you walk into a barbershop in Tampa or a diner in Cleveland, the employees behind the counter are likely to be aware of it before their accountants.
The headline figure is fairly simple. Up to $25,000 in qualified tips may be deducted annually by eligible employees from their federal taxable income. This benefit expires when modified adjusted gross income exceeds $150,000 for single filers and $300,000 for couples. It matters more than it may seem because it is available whether or not you itemize. For years, the tax code favored those who could afford accountants, and the majority of tipped employees do not itemize. This one leans in the opposite direction, at least on paper.
| Detail | Information |
|---|---|
| Official Rule Name | Occupations that Customarily and Regularly Received Tips; Definition of Qualified Tips |
| Treasury Decision | TD 10044 |
| Issuing Agencies | U.S. Department of the Treasury and Internal Revenue Service |
| Date Released | April 13, 2026 |
| Effective Date | June 12, 2026 |
| Statutory Authority | Section 224 of the Internal Revenue Code, added by OBBBA |
| Parent Legislation | One, Big, Beautiful Bill Act (Public Law 119-21), signed July 4, 2025 |
| Maximum Annual Deduction | $25,000 per tax return |
| Income Phase-Out Threshold | $150,000 single / $300,000 joint filers |
| Number of Qualifying Occupations | More than 70, grouped into 8 categories |
| Tax Years Covered | 2025 through 2028 |
| New W-2 Reporting (2026) | Box 14b for Treasury Tipped Occupation Code, Box 12 code “TP” for qualified tips |
| IRS Chief Executive Officer | Frank J. Bisignano |
| Public Comments Received | Over 300 |
| Public Hearing Date | October 23, 2025 |
Those who had read the proposed version were taken aback by Treasury’s lack of flexibility. Despite receiving over 300 comments and holding a lengthy public hearing in October, the agency ultimately approved the proposal “substantially as proposed,” according to the Federal Register’s meticulous language. A few adjustments were made. Personal services now include floral designers and visual artists. Attendants at gas pumps slipped into delivery and transportation. Doormen were included. Refined and clarified, digital content creators remained. However, Treasury rejected the more comprehensive call for a facts-and-circumstances test, sticking to a closed list of over 70 professions divided into eight categories: entertainment, hospitality, beverage and food service, home services, personal services, personal appearance and wellness, recreation, and transportation.
A “qualified tip” is defined as the location of the actual altercation. Treasury made it clear that digital assets are no longer available. Stablecoins, cryptocurrencies, and even dollar-pegged ones don’t qualify as cash. Neither do meals, tickets to events, or services that are traded for cash. Reading the regulation gives the impression that Treasury decided not to invite the headache after observing the crypto-tipping experiments of theprevious few years.
Service fees are the larger structural change. That automatic 18% gratuity added to a check for an eight-person gathering? Not a qualified tip unless the client can change or refuse it without facing any repercussions. Because the rule is so specific—if the point-of-sale device does not offer a “no tip” option, only the amount above the minimum suggested percentage qualifies—restaurant operators are already rewriting POS prompts. It’s the kind of detail that seems technical until you consider how much it could cost a server.
A loose end remains. Workers at specific service trades or companies, such as financial institutions, consulting firms, and performing arts venues, were meant to be completely excluded. However, until separate SSTB regulations are finalized, the IRS has suspended enforcement of that disqualification under Notice 2025-69. For the time being, a bartender at a comedy club receives the same treatment as one at a corner pub. It remains to be seen if that holds.
It’s difficult to ignore how much depends on a three-digit code. Employers will report each employee’s Treasury Tipped Occupation Code in a new Box 14b on the W-2 starting in 2026, with qualified tips indicated under code “TP” in Box 12. Payroll suppliers are in a panic. In the meantime, some employees have already received refund checks, a minor political triumph that the administration has been keen to highlight. It probably won’t be evident until the 2028 sunset approaches whether the policy truly fulfills its promises or merely rearranges who pays what.
