No Tax on Tips: IRS Releases Preliminary List of Who Qualifies

Big news for businesses with tipped employees. The U.S. Treasury and IRS have just released a preliminary draft list of occupations that will be eligible for the new "No Tax on Tips" provision. This is the first concrete piece of guidance employers have received on this topic, and it offers a much clearer picture of which employees will be impacted.

The list is surprisingly broad and may include more of your staff than you'd expect.

Why This List Matters

As a quick reminder, the "No Tax on Tips" rule is a temporary federal income tax credit for employees, effective from January 2025 through the end of 2028. To be eligible for the credit, an employee’s tips must be considered "qualified." One of the key requirements is that the employee must work in an occupation that "customarily and regularly received tips on or before December 31, 2024." 

This new draft list is the government's first official attempt at defining exactly which jobs meet that standard.

A Look at the List: It's More Than Just Servers

While the list is still a draft and subject to change, it shows that the government is taking a wide view of what constitutes a tipped occupation. Of course, you'll find the roles you’d expect, like bartenders, wait staff, and hotel bellhops.

But the list goes much further. Here are some other categories and examples included in the draft:

• Personal Appearance & Wellness: This category includes barbers, hairstylists, massage therapists, manicurists, and even tattoo artists.
• Home Services: The list includes professionals like house cleaners, landscapers, plumbers, and furniture movers.
• Transportation & Delivery: Taxi and rideshare drivers, pizza and grocery delivery drivers, and valet attendants are all included.
• Entertainment & Events: This group covers a wide range, from casino dealers and DJs to wedding planners and photographers.

Business owners should review the full preliminary list to identify every role within their organization that might be affected.

Click here to Download the Full Draft of the IRS' List

Key Reminders for Employers

With this new list in hand, it's a perfect time to remember the key facts about this provision:

• It's an Income Tax Credit ONLY: This credit does not apply to FICA taxes. You must continue to withhold and pay Social Security and Medicare taxes on all reported tips.
• Your Payroll Process Doesn't Change: This is a credit employees will claim on their annual tax returns. You should continue to withhold all applicable taxes from their paychecks as usual.
• Communication is Crucial: Now that you have a better idea of who is eligible, you can proactively communicate with those employees. Make sure they understand that this is an end-of-year tax benefit and their regular paychecks will not change.

The release of this draft list is a major step forward. It gives you, the employer, a tangible tool to begin planning and communicating with your team about the changes ahead.