The “No Taxes on Tips” regulation has been enacted and will take effect on June 12, 2026. The new regulations, issued by the IRS, declare that a deduction shall be allowed for an amount equal to a taxpayer’s qualified tips, up to a maximum of $25,000. (It can be less for those whose adjusted gross income exceeds $150K ($300K if filing jointly).)

Qualified tips are those paid in “cash” (i.e., money as opposed to event tickets or other gifts), including shares of a tip pool, but does not include an employee’s share of a service charge or other mandatory charge. The regulation prohibits trying to characterize as tips mandatory charges (such as automatic gratuities for larger parties) in an effort to take advantage of the deduction.

The new regulation includes a chart of tipped occupations eligible for the credit, and it is more expansive than the list of tipped occupations for which the DOL permits employers to take a tip credit. For example, it includes dishwashers and food preparation workers.

This is a partial list of the workers who are permitted to take the tax deduction in the hospitality industry (the wording is taken directly from the chart provided in the regulation). There are additional occupations identified in the official chart that would be employed in casinos, spas, and golf courses or other resort recreation activity centers.

• Bartenders
• Wait staff
• Food or beverage servers, non-restaurant
• Dining room and cafeteria attendants and bartender helpers
• Chefs and cooks
• Food preparation workers
• Fast food and counter workers
• Dishwashers
• Host staff, restaurant, lounge, and coffee shop
• Bakers
• Baggage porters and bellhops
• Concierges
• Hotel, motel, and resort desk clerks
• Maids and housekeeping cleaners

A possible result of this new rule may be to disincentivize service employees from working at jobs that rely on service charges rather than voluntary tips. Thus, employees may be less interested in positions in In-Room Dining and Banquets departments, which have traditionally imposed service charges as a primary means of supplementing employees’ hourly income. If so, employers may need to rethink their pay structures for these positions.

The new regulation will be 26 CFR § 1.224-1. Its publication in the Federal Register is available here.

Stokes Wagner will continue to monitor updates and will provide additional updates as they become available. If you have any questions, do not hesitate to contact a Stokes Wagner attorney.

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THIS DOCUMENT PROVIDES A GENERAL SUMMARY AND IS FOR INFORMATIONAL/EDUCATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE COMPREHENSIVE, NOR DOES IT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT WITH COUNSEL BEFORE TAKING OR REFRAINING FROM TAKING ANY ACTION.