The One Big Beautiful Bill Act (OBBBA) created a new exemption that eliminates federal income tax on tips for certain occupations.

As of September 1, 2025, the Treasury Department has identified 68 occupations (expected to finalize at about 70 by October 2, 2025) where workers can receive tips tax-free annually on $25,000. The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). This change could reduce tax burdens for employees in tipped industries and may also shift how businesses track, report, and pay wages.  Some of the occupations listed may qualify but are not typically tipped – like plumbers and electricians.

Who Qualifies?

The exemption applies to jobs that are “customarily and regularly tipped.” Occupations are grouped into eight categories:

Category	Examples of Occupations
Beverage & Food Service	Bartenders, wait staff, cooks, fast-food workers
Entertainment & Events	DJs, musicians, dancers, gambling staff, coatroom attendants
Hospitality & Guest Services	Bellhops, concierges, desk clerks, hotel maids
Home Services	Electricians, plumbers, landscapers, cleaners, maintenance staff
Personal Services	Babysitters, tutors, event planners, photographers, pet caretakers
Personal Appearance & Wellness	Hairdressers, massage therapists, manicurists, tattoo artists, trainers
Recreation & Instruction	Golf caddies, tour guides, sports instructors
Transportation & Delivery	Taxi/rideshare drivers, delivery people, movers, vehicle cleaners

Why It Matters for Business Owners

Recruiting & Retention – This tax break makes tipped roles more attractive, helping businesses fill positions.

Recordkeeping – While tips may be exempt from federal income tax, employers still need clear records of employee compensation and should confirm how state tax authorities will handle the exemption.

Next Steps

• Stay tuned – Watch for the official IRS list by October 2, 2025.
• Communicate with staff – Let eligible employees know about the change and how it may affect their annual tax filings.
• Update recordkeeping systems and employee handbooks – Coordinate with your accountant or payroll provider to ensure compliance.
• Check state rules – Some states may adopt the federal exemption, while others may still tax tips.

Anticipated W-2 Reporting for 2025:

The IRS has until October 2, 2025, to issue final rules. Based on current IRS notices and drafts:

• Box 1 (Wages, tips, other comp.) – Tips will remain included.
• Box 5 (Medicare wages) / Box 3 (Social Security wages) – Likely still included unless Treasury provides a FICA exemption.
• New Code in Box 12 – The IRS is expected to create a new reporting code (similar to “DD” for health insurance or “C” for group-term life) to show tip amounts for information purposes only by 2026.
• Box 14 (Other) – Employers may be instructed to use Box 14 for clarity until a permanent Box 12 code is finalized.

We’ll provide an updated list once the IRS issues its final guidance.