The new “no tax on tips” provision for U.S. workers doesn’t apply to mandatory tips, such as those some restaurants require of large parties, the Internal Revenue Service has clarified.
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Trump’s tariffs affecting small businesses in Los Gatos Poll shows support among likely voters for Measure A Opponents of Measure A say taxes are already too high in Santa Clara County Who qualifies for ‘no tax on tips’ and what counts as a tip? Here are the new rules Did you dawdle on that new heat pump or EV? Better move fast to get those tax credits“Qualified tips must be paid voluntarily by the customer and not be subject to negotiation,” said a statement released by the agency on Sept. 28. If a customer has no option to disregard or modify the charge, it cannot be deducted from the employee’s income.
It’s common for restaurants to impose a gratuity — generally 18% of the bill — for parties of six people or more. And the threshold is sometimes much lower: One Cupertino restaurant came under fire in 2023 after a diner posted a receipt showing a mandatory 18% tip for “parties of 1 or larger.”
The federal law signed in July allows workers in certain occupations to deduct up to $25,000 in tips from the income reported on their tax filings.
Last week, the IRS released a list of eligible occupations — those whose workers it says “customarily and regularly” receive tips. It designated about 70 jobs, including many restaurant and hotel workers, gambling dealers, babysitters, taxi and rideshare drivers, hairdressers, physical trainers, caddies, locksmiths and “self-enrichment teachers.”
More: The IRS fact sheet on “No Tax on Tips”
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