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Treasury Guidance on “No Tax on Tips”
Sep 23, 2025
The U.S. Department of Treasury has released new guidance on how the recently enacted No Tax on Tips provision will apply to restaurant and hospitality workers. This provision allows eligible workers to deduct up to $25,000 of qualified tips per year from 2025 through 2028, giving tipped employees meaningful tax relief on the income they depend on.
Who’s Eligible
Restaurant waitstaff, bartenders, bussers, hosts, baristas, bakers, cooks, and counter-service workers are all listed as occupations covered by the deduction. As required by law, Treasury issued a preliminary list of traditionally tipped occupations within 90 days of enactment. While public comments are invited, Treasury indicated the final list will likely remain “substantially the same.”
What Counts as a Tip vs. a Service Charge
One of the most important clarifications is the difference between a voluntary tip and a mandatory service charge. According to Treasury and Revenue Ruling 2012-18, payments qualify as tips only when:
- They are made free from compulsion.
- The customer has an unrestricted right to determine the amount.
- The payment is not dictated by employer policy or negotiation.
- The customer generally decides who receives the payment.
A key example from the guidance highlights this distinction: If a restaurant bill includes a “recommended tip” (e.g., 18%) but the customer has the clear ability to adjust the amount—including lowering it to zero—that payment qualifies as a voluntary tip. In contrast, a mandatory service fee, such as a required large-party charge, is not a tip and therefore does not qualify for the tax deduction.
What’s Next
Treasury will hold a public hearing on October 23 to gather feedback on the guidance and the preliminary list of eligible occupations. The National Restaurant Association (NRA) will participate and provide comments on behalf of the industry. We encourage members and operators to share their feedback as we prepare for this hearing.
Why It Matters
The No Tax on Tips deduction provides real tax relief for millions of tipped workers across the country—helping employees keep more of their hard-earned income while supporting the economic growth of the restaurant and hospitality industry.
Access the full Treasury guidance here.