The Treasury Department has identified 68 occupations eligible for the new tips tax deduction, spanning eight major categories from beverage service to transportation workers. The leaked list includes traditional tipped positions like bartenders and servers, but notably extends to digital content creators, entertainers, home service workers, and personal care professionals.
Qualified individuals can deduct up to $25,000 annually in tips received from customers, including cash tips and tip-sharing arrangements. The deduction phases out for taxpayers with modified adjusted gross income exceeding $150,000 for single filers or $300,000 for joint filers. Self-employed individuals cannot deduct more than their net business income from tip-earning activities.
The IRS must publish the official occupation list by October 2, 2025, covering jobs that "customarily and regularly" received tips as of December 31, 2024. Until then, practitioners should advise clients in potentially qualifying occupations to maintain detailed tip records.
Overtime Deduction Details
A separate deduction applies to qualified overtime compensation, allowing single taxpayers to deduct up to $12,500 annually and joint filers up to $25,000. The same income phase-out thresholds apply as the tips deduction.
Form Changes and Reporting Requirements
The IRS has released draft 2026 Form W-2 with significant modifications. Box 14 splits into 14a (Other) and 14b (Treasury tipped occupation code). New Box 12 codes include TP for qualified tips and TT for qualified overtime compensation. These amounts will be reported on the new Schedule 1-A (Form 1040).
While new forms aren't available until 2026, the deductions apply to 2025 income. The IRS won't modify 2025 withholding tables, meaning affected taxpayers may need estimated payment adjustments or should expect refunds when filing 2025 returns in 2026.
Action Items for Practitioners
Identify clients in potentially qualifying occupations and advise them to maintain comprehensive tip documentation starting immediately. This includes records of cash tips, credit card tips, and tip-sharing arrangements. Employers should begin tracking which employees work in qualifying positions.
Consider estimated payment adjustments for high-earning tipped employees who may benefit from the deduction. Review client income levels against phase-out thresholds to determine eligibility.
For self-employed clients in service industries, evaluate whether their work qualifies as a traditionally tipped occupation under the Treasury guidelines.
Additional Provision: Trump Accounts
The new law also creates special savings accounts for children born between 2025-2028, with $1,000 federal contributions and annual contribution limits of $5,000. Employers can contribute to these accounts, reportable under new Form W-2 code TA.
For complete occupation lists and detailed IRS guidance as it becomes available, practitioners should regularly check the IRS website at irs.gov and monitor Treasury Department announcements. The final rules and forms will significantly impact 2025 tax preparation season.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
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