No tax on tips: The IRS has finalized the qualifying occupation list

One of the most significant provisions in the One Big Beautiful Bill Act is the "no tax on tips" deduction — and for payroll teams, the question has always been: which employees actually qualify? That question now has a final answer.

⚠️Note: This information is for informational purposes only and does not constitute formal tax, legal, or compliance advice. Always consult with qualified tax advisors, legal counsel, and your organization’s internal teams for guidance specific to your situation. Additional regulations may apply. For the most accurate and up-to-date information, refer to official government resources and regulatory agencies.

On April 13, 2026, Treasury published FR Doc. 2026-07104, the final rule establishing Treasury Tipped Occupation Codes (TTOCs) and the official list of occupations eligible for the Section 224 tip deduction. The preliminary list we covered in September 2025 matched the final version closely. Two occupation titles were adjusted, and the structure — 8 categories, codes 101 through 810 — stayed intact.

This post covers what changed, what the final rule means for payroll operations, and what your team needs to have in place before tax year 2026 reporting begins.

What is the One Big Beautiful Bill Act?

The One Big Beautiful Bill Act, enacted in July 2025, introduces significant legislative changes—most notably, impacting payroll tax compliance for businesses and workers. Since its introduction, the bill’s payroll tax implications have been a major topic of discussion in the business community. Did you catch our webinar that did a deep dive into the impacts of the OBBBA? Check it out here!

What the "no tax on tips" deduction actually covers

‘Tax-Free Tips’ has been discussed on Capitol Hill for years. Its inclusion in the One Big Beautiful Bill Act is intended to provide financial relief to service workers facing inflation, with the broader goal of boosting the economy and supporting the service industry.

Under Section 224 of the OBBBA, workers in qualifying tipped occupations can exclude up to $25,000 in tips from federal income tax. The income phase-out starts at $150,000 (or $300,000 for married couples filing jointly), with the deductible amount reduced by $100 for every $1,000 of income above that threshold. The deduction is available to both itemizers and non-itemizers.

The deduction applies to tax years beginning after December 31, 2024, and is currently set to expire after December 31, 2028. That sunset is now written into the final rule — payroll teams should build configurations with a defined end date in mind, not treat this as permanent.

The official qualifying occupation list

The final rule assigns each qualifying occupation a Treasury Tipped Occupation Code (TTOC). These codes, along with their corresponding Standard Occupational Classification (SOC) codes, are the official reference for determining eligibility and — once finalized IRS form guidance arrives — for W-2 reporting in Box 14.

Two titles were updated from the preliminary version, and three occupations were added that were not on the preliminary list:

The final rule also expanded the list with three new occupations:

• Visual Artists (TTOC 509) — Personal Services
• Floral Designers (TTOC 510) — Personal Services
• Gas Pump Attendant (TTOC 810) — Transportation & Delivery

The occupational descriptions and SOC codes for existing roles were unchanged.

The full list covers eight categories:

• Beverage and Food Service (101–110): bartenders, wait staff, chefs and cooks, bakers, dishwashers, and related roles
• Entertainment and Events (201–211): gambling dealers, dancers, musicians, digital content creators, and locker room attendants
• Hospitality and Guest Services (301–304): bellhops, concierges, hotel desk clerks, and housekeeping staff
• Home Services (401–409): electricians, plumbers, HVAC mechanics, locksmiths, and roadside assistance workers
• Personal Services (501–510): personal care workers, event planners, pet and show animal caretakers, nannies, and floral designers
• Personal Appearance and Wellness (601–611): barbers, massage therapists, nail technicians, tattoo artists, and tailors
• Recreation and Instruction (701–706): golf caddies, tour guides, and sports and recreation instructors
• Transportation and Delivery (801–810): rideshare and taxi drivers, shuttle drivers, goods delivery workers, valets, and home movers

We've created an easy reference guide, with all occupations listed, including their TTOC and SOC codes:

View the full occupation list here →

Payroll operations: what employers need to do

The final rule confirms occupation eligibility. What it doesn't resolve yet is exactly how employers report this on tax forms — that formal IRS guidance is still pending for 2026. But the directional requirements are clear enough to start preparing now.

What we know about 2026 W-2 reporting

IRS guidance has finalized the following W-2 changes for tax year 2026:

• Box 12, code TP: qualified tips received
• Box 12, code TT: qualified overtime amounts
• Box 14: TTOC occupation code, to support accurate exemption claims

Learn more here: https://www.irs.gov/pub/irs-pdf/iw2w3.pdf 

Worker classification: the step that can't wait

This is the most operationally urgent item. Before any reporting change takes effect, payroll teams need to identify which employees are in qualifying TTOC occupations and align those records in the payroll system.

For employers with diverse service roles — staffing agencies, hospitality operators, healthcare facilities with personal care workers — this requires a deliberate classification review. The final rule specifies that tips must be received in connection with a listed occupation; incidental tips to non-listed employees don't qualify.

Four things to do now

1. Map your workforce against the TTOC list. Identify every employee whose primary role corresponds to a qualifying occupation. Document the mapping — you'll need it when Box 14 reporting is required.
2. Configure tip tracking separately from other pay. If your payroll system commingles tips with other compensation, separate those buckets now. This is foundational to any future reporting.
3. Prepare for W-4 updates. Employees who want to reduce federal withholding based on tip income will update their W-4. Make sure your team can process those changes promptly and that your system can apply them accurately.
4. Build the 2028 sunset into your compliance calendar. This deduction runs through December 31, 2028 and no further. Flag that date now so reporting doesn't inadvertently continue past the termination provision.

Multi-state employers: an added layer

The federal deduction does not automatically flow to state returns. Some states will conform; others will not. Payroll teams with employees in multiple states need to verify each state's position on tip income taxation independently.

Frequently asked questions