"No Tax on Tips" Is Now Final: What the April 2026 Regulations Settle for Employers

Key takeaways

• Final regulations (TD 10044) under IRC § 224 were published in the Federal Register on April 13, 2026, finalizing the OBBBA "no tax on tips" deduction.
• The deduction is capped at $25,000 per return, phases down above higher income thresholds, and applies to tax years 2025 through 2028.
• The regulations set an exhaustive list of 71 occupations that customarily receive tips; workers outside the list do not qualify.
• Qualified tips are voluntary cash tips — service charges and mandatory gratuities are excluded — and employers must report qualified tips and the occupation code on Form W-2 for 2026.

What the deduction is

OBBBA created a deduction for qualified tips under IRC § 224. An eligible worker may deduct qualified tip income up to $25,000 per return, subject to an income-based phase-down at higher earnings, for tax years 2025 through 2028. It is a deduction, not an exclusion — the tips are still wages for payroll-tax purposes — and it is temporary, scheduled to sunset after 2028 absent further legislation.

The headline is simple. The implementation is not, which is why the final regulations matter.

What the April 2026 regulations settle

Treasury and the IRS issued final regulations, TD 10044, published in the Federal Register on April 13, 2026. They resolve the two questions that determine who actually benefits: which occupations qualify, and what counts as a tip.

The occupation list is exhaustive — and now numbers 71

The deduction is available only to workers in occupations that "customarily and regularly" received tips. The regulations do not leave that to interpretation. They fix an exhaustive list, organized under Treasury Tipped Occupation Codes, that the final rule expanded to 71 occupations — adding floral designers, visual artists, and gas-pump attendants to the proposed list. The list runs from servers and bartenders to hairdressers, golf caddies, and taxi drivers. If an occupation is not on it, the worker does not qualify, regardless of how the worker is actually paid.

A "qualified tip" is voluntary and in cash

The regulations narrow what counts. Qualified tips are amounts a customer pays voluntarily — the customer must be free to set or withhold the amount. Service charges, mandatory automatic gratuities (the standard large-party add-on), and amounts paid in digital assets are not qualified tips. A restaurant that converts tipping into a mandatory service charge takes those amounts outside the deduction entirely. That is a structural decision with a direct effect on employees' eligibility.

Service-business workers face a limitation

Workers employed by a specified service trade or business generally remain ineligible. The IRS has provided transition relief that effectively suspends enforcement of that disqualification until separate final regulations address it, but the limitation is in the statute and businesses should not assume it has disappeared.

Why the burden is the employer's

The deduction is claimed by the worker, but the reporting that makes it possible is the employer's responsibility. For 2026, employers must separately report qualified tips and the applicable occupation code on the Form W-2. That requires payroll systems that can distinguish a qualified voluntary tip from a service charge, that can carry the correct occupation classification for each tipped employee, and that produce a W-2 the employee can actually use to claim the deduction.

None of that is automatic in most existing payroll configurations. A business with a tipped workforce that has not revisited its payroll coding, its handling of service charges versus voluntary tips, and its occupation classifications is not ready for the 2026 W-2 cycle.

What to do now

For any employer with tipped workers, the work is concrete. Confirm which employees fall within the 71 listed occupations and classify them correctly. Review how the business treats service charges and automatic gratuities, and understand that converting tips to mandatory charges removes the deduction for employees. Update payroll and W-2 reporting so qualified tips and occupation codes are captured for 2026. And communicate clearly with employees about what they can and cannot deduct, so the firm is not fielding questions during filing season that should have been answered in payroll setup.

Bottom line

The tip deduction is now final law with a fixed occupation list and a narrow definition of what counts. The benefit accrues to workers; the compliance work accrues to employers. Businesses with tipped staff should treat the 2026 W-2 reporting requirements as an active payroll project — and should understand that how they structure service charges directly determines what their employees can deduct.