Federal agencies are working to make President Donald Trump’s “no tax on tips” campaign promise a reality for eligible filers starting with their 2025 income, issuing new guidance Sept. 19 spelling out which workers will qualify.

Under a provision of the One Big Beautiful Bill Act Trump signed in July, eligible workers will be able to deduct up to $25,000 in “qualified” tips from their taxable income each year through 2028.

The new Treasury Department and Internal Revenue Service proposed regulations in the Federal Register detail which jobs would be covered under the rule and what will be considered a “qualified” tip.

Which workers qualify?

People working in jobs that “customarily and regularly” received tips before Dec. 31, 2024, will be eligible for the tax benefit, according to the Treasury.

The Treasury’s list of qualified occupations includes many jobs. Among them are bartenders, wait staff and food servers. But the tax benefit will also extend to gambling dealers, clowns, DJs, entertainers, content creators, maids, electricians, plumbers, babysitters, drivers and more.

The deduction is available for both itemizing and non-itemizing taxpayers, but it phases out for taxpayers with modified adjusted gross income over $150,000, or $300,000 for joint filers. It is not available for married couples who file separately.

The maximum annual deduction is $25,000, and for those who are self-employed, the deduction “may not exceed a worker’s net income from the trade or business in which the tips were earned,” according to the IRS.

Jobs that fall under “specified service trade or businesses,” or SSTBs, won't qualify for the tax benefit. The Treasury previously outlined a list of SSTBs that includes fields like health care, legal and financial services, and performing arts.

What counts as a 'qualified' tip?

Tips must be reported to a worker’s employer and noted on their W-2 to qualify. Self-employed workers and contractors may also qualify for the benefit so long as their tips are also reported on their year-end tax forms.

The IRS defines “qualified tips” as voluntary cash or charged tips received from customers or through tip sharing. Mandatory tips and automatically applied gratuity won’t count. Qualifying tips must be determined by the payor and given voluntarily.

The Treasury Department clarified in its proposed regulations that tips given for illegal services, prostitution and pornographic activity would not qualify. To prevent reclassification of income as qualified tips, the proposed regulations also clarify that a tip would not qualify if the recipient has an ownership interest in or is employed by the tipper.

Tipped workers who benefit from the new deduction will still be required to pay Social Security and Medicare taxes, along with state and local taxes.

Reach Rachel Barber at rbarber@usatoday.com and follow her on X @rachelbarber_

This article originally appeared on USA TODAY: No tax on tips for who? These workers and tips will qualify.

Reporting by Rachel Barber, USA TODAY / USA TODAY

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