In brief
The Treasury Department has submitted proposed regulations regarding the 'no tax on tips' benefit, originally pledged by President Trump. Under the new guidelines, only certain tipped occupations will qualify for this tax exemption. The measure allows eligible workers to deduct up to $25,000 in tips from 2025 to 2028. However, many workers may still be left out as the eligibility criteria are tightened. This provision is projected to cost the government $40 billion through 2028.
WASHINGTON (AP) — The U.S. Treasury Department is moving forward with guidelines to make President Donald Trump's 'no tax on tips' promise a reality, although newly proposed regulations may limit the number of workers eligible for this benefit.
On Friday, the Treasury submitted proposed regulations to the Federal Register, detailing which occupations will be included in the 'no tax on tips' rule and what constitutes a 'qualified tip.'
The provision, part of a massive tax and spending law signed by Trump, would eliminate federal income tax on tips for workers in traditionally tipped jobs. It also allows certain workers to deduct up to $25,000 in qualified tips from 2025 to 2028, phasing out for those with modified adjusted gross incomes over $150,000.
To qualify as a tip under the new guidelines, the amount must be earned in one of the Treasury's defined 'qualified occupations.' Exempted from the tax are sommeliers, cocktail waiters, and certain performers, along with other roles including DJs and delivery drivers.
Mandatory tips or auto-gratuities will not qualify, but tip pools that are reported to the IRS will. Moreover, only tips noted on an employee's W-2 at year-end will be eligible for exemption.
The proposal is set to be retroactive to January 1, 2025, anticipated to affect nearly 4 million workers and projected to increase the federal deficit by $40 billion through 2028.
