Proposed regulations for the new tips deduction under IRC §224, which include the mandated list of close to 70 occupations that customarily and regularly received tips on or before December 31, 2024, have been released by the IRS. (REG-110032-25) This qualified occupations list and accompanying Treasury tipped occupation codes mirror the draft list that was previously released, although some of the occupation codes have been changed.
In addition to the list of occupations that qualify for the deduction, the proposed regulations clarify:
- What is treated as a “cash tip;”
- When a tip is considered voluntary, with some surprising distinctions when electronic handheld point of sale (POS) devices are used;
- Which tips qualify when tips are reported pursuant to a Tipped Rate Determination Agreement or Gaming Industry Tip Compliance Agreement;
- Tips paid for services performed in an illegal activity (e.g., unlicensed bartender, prostitution) do not qualify for the deduction, nor do tips received by an employee or other service provider who has an ownership interest in or is employed by the tip payor; and
- Because performing artists are an IRC §199A specified service trade or business (SSTB), tips paid to performing artists such as comedians or musicians operating a SSBT do not qualify for the deduction, but they will qualify if the performing artist is working as an employee (e.g., a piano bar player working in a hotel).
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