IRS Clarifies Requirements For "No Tax On Tips" Deduction

On September 22, 2025, the Internal Revenue Service published a Notice of Proposed Rulemaking (NPRM),¹fleshing out the One Big, Beautiful Bill Act's "no tax on tips" deduction. Among other things, the NPRM lists the requirements for qualified tips, as well as occupations that may be eligible for the new deduction.

Requirements for Qualified Tips

In order to qualify, a tip must meet five requirements:

1. The payment must be a cash tip;²
2. The payment must be voluntary;
3. The customer must have the unrestricted right to determine the amount;
4. The payment should not be the subject of negotiation or dictated by employer policy; and
5. Generally, the customer has the right to determine who receives the payment.³