No Tax on Tips: the final IRS occupation list, and what actually counts as a "qualified tip"
Last reviewed July 9, 2026 · sourced to IRS & Federal Register (linked below)
In April 2026, Treasury and the IRS issued final regulations (TD 10044, announced in IR-2026-49) implementing the "No Tax on Tips" deduction from the One, Big, Beautiful Bill Act. The final rules do two things every operator and tipped worker should understand: they publish the official List of Occupations that Receive Tips (more than 70 occupations, each with a three-digit Treasury Tipped Occupation Code), and they nail down what is — and is not — a qualified tip. If a worker's occupation isn't on the list, or a payment doesn't meet the definition, there's no deduction, no matter what the pay stub says.
The 8 occupation categories
The final regulations group the 70+ listed occupations into eight coded categories:
| Code range | Category | Examples named in IRS/Federal Register materials |
|---|
| 100s | Beverage & Food Service | Bartenders, wait staff |
| 200s | Entertainment & Events | — |
| 300s | Hospitality & Guest Services | — |
| 400s | Home Services | — |
| 500s | Personal Services | Visual artists, floral designers (both added in the final rules) |
| 600s | Personal Appearance & Wellness | — |
| 700s | Recreation & Instruction | — |
| 800s | Transportation & Delivery | Water taxi operators; gas pump attendants (added in the final rules) |
The examples above are only the roles the IRS and Federal Register materials call out by name — each category contains many more. For the authoritative, complete list with occupation codes, go straight to the final regulations in the Federal Register and match each tipped role you employ (or work) to its code. Employers need that code anyway: the occupation is part of the 2026 W-2 reporting (see our employer W-2 reporting guide).
What counts as a "qualified tip" — the 4 tests
- 1. Listed occupation. The worker must be in an occupation on the List of Occupations that Receive Tips. Gig workers and self-employed people can qualify too, if their occupation is listed (with the deduction limited to the individual's net income from the work).
- 2. Cash or cash-equivalent medium. Cash, check, credit or debit card, gift card, tokens readily exchangeable for a fixed cash amount, or electronic/mobile payments denominated in cash (think card tips and payment apps).
- 3. Voluntary and not negotiated. The customer must pay it voluntarily. Mandatory service charges are not qualified tips — the final rules use the classic example of an automatic 18% large-party charge: if the customer can't disregard or modify it, the amounts distributed to staff from it don't qualify. Tips received through a tip pool or tip-sharing arrangement do count.
- 4. On an information return. The deduction is only available for tips that show up on Form W-2, 1099-NEC, 1099-MISC, 1099-K, or that the worker reports on Form 4137. Unreported cash under the table doesn't just risk penalties — it's ineligible by definition.
The operator's takeaway: the tip-vs-service-charge line and the occupation code are now payroll data problems. If your POS lumps auto-gratuities in with voluntary tips, or your payroll file has no occupation field, your employees' deductions (up to $25,000/yr, phasing out above $150,000 MAGI / $300,000 joint, for 2025–2028) depend on numbers you can't currently produce. Separating them per pay period is much cheaper than reconstructing a year in January.
TipLedger tracks voluntary tips separately from service charges and keeps per-employee, per-period totals that reconcile to W-2-ready numbers. Free during the beta.
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Related reading
- Tip pools and tip-outs: whose share is a qualified tip — Being in the tip pool is not a substitute for being on this list — Treasury said so in terms.
- The specified service trade or business exclusion — Even a listed occupation can be disqualified by the employer’s trade or business.
- No Tax on Tips: how much will you actually save? (2026 worked examples) — marginal-rate math, the $25,000 cap, the MAGI phase-out, and what does not change (FICA, state tax).
- No Tax on Tips & Overtime: what small W-2 employers must report in 2026 — the deduction caps, the overtime-premium split, the end of the 2025 grace period, and a 5-step readiness checklist.
- No Tax on Overtime: how the deduction is actually calculated — worked examples of the premium-only split, double time, state daily OT, the phase-out, and W-2 Box 12 code TT.
- Auto-gratuity isn't a tip: why service charges don't qualify — the Rev. Rul. 2012-18 four-factor test, IRS examples, and how mandatory charges change your W-2s and the FICA tip credit.
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