Handling Qualified Tips in 2025

⚠️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.   

For tax year 2025, eligible individuals may claim an above-the-line deduction for qualified tips, subject to statutory limits and income phaseouts. 

To support employees claiming this deduction, the IRS issued transitional guidance for employers. Because IRS forms were not updated for tax year 2025, employers are not required to separately report qualified tips this year. New reporting boxes and codes will be introduced beginning in tax year 2026. 

Employers will not be penalized for failing to report cash tips or qualified overtime on 2025 forms, provided the base filing is complete and accurate. However, the IRS encourages employers to make this information available to employees through secure methods such as: 

• An online payroll portal 
• A written or digital year-end statement 
• Box 14 of the Form W-2 

Let’s walk through what qualifies and how employees can determine their qualified tip amount for 2025. 

To be considered “qualified tips,” tips generally must meet both of the following criteria:

• Role-based eligibility: Tips must be received in an occupation that customarily and regularly received tips on or before December 31, 2024, as identified by Treasury and IRS guidance. 
• Tip-based eligibility: Tips must be voluntary and customer-initiated. Automatic service charges treated as wages do not qualify.

Beginning in tax year 2026, employers will be required to report: 

• The total amount of qualified tips, and 
• The Treasury Tipped Occupation Code (TTOC) 

For tax year 2025, the IRS allows employees to determine their qualified tip amount using existing records. Acceptable sources include: 

• Box 7 (Social Security Tips) on the 2025 Form W-2 
• Total tips reported by the employee to the employer on Forms 4070 (or equivalent monthly reporting) 
• Unreported tips included on Form 4137, which may be added regardless of which method above is used 
• Tip totals voluntarily provided by the employer, such as amounts listed in Box 14 of the W-2 or in a separate year-end statement 

Treasury has published a list of occupations that are considered eligible tipped roles. You can view the Greenshades “No Tax on Tips” qualifying occupation list for more information.

• Map employee roles to the qualifying tipped occupation list and retain documentation supporting that mapping 
• Confirm your payroll process distinguishes voluntary tips from service charges 
• Decide how you will summarize 2025 tip information for employees, using either: 
  • Box 14 of the Form W-2, or 
  • A separate written or digital year-end statement 

Both approaches are acceptable for tax year 2025 and help employees accurately claim the new deduction.