New IRS Rule: Certain Tipped Workers May Not Have to Pay Taxes on Tips (IR-2025-92 Explained)
What Is IR-2025-92?
On September 19, 2025, the IRS and the U.S. Treasury released IR-2025-92, which outlines proposed regulations allowing certain tipped workers to exclude tips from taxable income.
This new rule is part of the tax law changes in the One Big Beautiful Bill and could lead to major tax savings for service industry workers.
In short: some workers will not have to pay federal income tax on qualified tip income.
Who Qualifies for Tax-Free Tips?
The IRS released a list of nearly 70 job titles across industries that are considered "customarily and regularly tipped."
Examples of eligible jobs include:
Waiters and Waitresses
Bartenders
Hairdressers and Nail Technicians
Valets, Bellhops, and Hotel Staff
Delivery Drivers
Tour Guides and Casino Dealers
Spa and Massage Providers
If your job involves receiving voluntary tips from customers, you may qualify.
What Counts as a Qualified Tip?
To be considered tax-free, a tip must meet the following conditions:
Qualified (Tax-Free) Tips:
Given voluntarily by the customer
Paid in cash, credit card, debit card, payment apps, or gift cards
Shared through an approved tip pool
Clearly separate from any service charge or wage
Not Qualified:
Mandatory service charges (such as an automatic 18 percent added to a bill)
Tips paid in cryptocurrency or barter
Payments for illegal or adult-related services
Negotiated or required tips included in pricing
All tips must still be tracked and reported, even if they qualify for exclusion.
When Does the Rule Take Effect?
As of now, the rule is in proposed status. The IRS is accepting public comments until October 23, 2025. Final regulations are expected to be published shortly after.
Although not yet in effect, the new guidance gives workers and employers time to review their systems and prepare for potential changes.
Why This Matters for Tipped Workers
If implemented, this rule could offer significant tax relief. For example, if you earned $10,000 in tips during the year and they meet the criteria for exclusion, you may be able to reduce your taxable income by that full amount.
This is especially valuable for workers in restaurants, salons, ride-hailing services, and other customer-facing roles.
Action Steps for Workers and Employers
Workers should:
Check if their job is on the IRS's tipped occupation list
Begin tracking tip income more accurately
Keep records of payment methods and whether tips were pooled
Ask employers how reporting will be handled moving forward
Employers should:
Review payroll systems and reporting tools
Educate employees on qualified versus non-qualified tips
Separate automatic service charges from customer-given tips
Stay updated on the final IRS regulations
Frequently Asked Questions
Do I still have to report my tips?
Yes. All tip income must be reported, even if it becomes excludable from taxable income under the new rule.
When will this rule go into effect?
The rule is still proposed as of September 2025. Final implementation may begin after the public comment period ends on October 23, 2025.
Will my state follow the same rule?
That depends. States are not required to follow federal exclusions. Check with your state tax authority.
Are digital or crypto tips included?
No. Cryptocurrency tips do not qualify under the proposed rule. Only tips paid in cash or widely accepted forms of money (such as cards or mobile payments) qualify.
Summary
IR-2025-92 could become one of the most impactful tax changes for tipped workers in years. If you or your employees earn tips, it is important to understand the qualifications for tax-free treatment and begin preparing for implementation.
Being proactive now can lead to meaningful savings during tax season.
