Who Qualifies Single filers earning up to $150,000 and joint filers earning up to $300,000 may deduct up to $25,000 in qualifying cash tips. Tips must be voluntarily paid, meaning the payer must have the ability to reduce the amount to zero.
What Counts as a Qualified Tip The final regulations confirm that voluntary cash or charged tips received from customers qualify, including those processed through digital tipping platforms and mobile applications, provided all other requirements are met. Service charges, mandatory automatic gratuities, and amounts paid in digital assets such as bitcoin do not qualify.
Eligible Occupations The final regulations confirm an exhaustive list of more than 70 occupations across eight categories in which workers may claim the deduction, ranging from servers and bartenders to hairdressers, golf caddies, and taxi drivers. Notable additions in the final regulations include visual artists, floral designers, and gas pump attendants. Only tips received in a listed occupation are eligible.
Strengthened Anti-Abuse Measures The final regulations replaced the previously limited anti-abuse approach with a broader facts and circumstances test designed to prevent improper deduction claims. An irrebuttable presumption exists that a tip is ineligible if the payer is the recipient’s employer or holds a direct ownership interest greater than 5 percent.
SSTB Guidance Deferred Workers employed by a specified service trade or business (SSTB) generally remain ineligible for the deduction. However, the conflict between the eligible jobs list and the SSTB exclusion has not been fully resolved. Transition relief under Notice 2025-69 effectively suspends enforcement of the SSTB disqualification until SSTB-specific final regulations are issued.
For questions about how these regulations may impact you or your business, contact your abip tax advisor.
