The IRS has officially released its final regulations implementing the “no tax on tips” provision of the One Big Beautiful Bill Act (OBBBA). Taking effect June 12, 2026, these rules reshape how employers must handle tipped income for payroll and reporting purposes. For employers, especially those in hospitality, personal services and other tip‑heavy industries, this is a pivotal compliance moment.
Qualified Tips
Qualified tips are defined as “cash tips, received directly or indirectly by an individual working in an occupation that customarily and regularly receives tips.” This occupation must have been recognized as tip-eligible on or before Dec. 31, 2024. The final regulations confirm that the IRS is adopting the same definition of “tips” used in the proposed regulations. Whether it qualifies for the new tax treatment depends entirely on the occupation and compliance with the final rules. For employers, this means your payroll system must be able to distinguish qualified tips from other forms of compensation starting June 12, 2026.
Updated Occupations List
To determine which workers are eligible for the “no tax on tips” treatment, the IRS finalized a structured list of tipped occupations, with each assigned a Treasury Tipped Occupation Code (TTOC). The main categories remain the same, although several of the TTOC Occupation Titles have been updated. The final regulations also add columns for TTOC Occupation Descriptions and TTOC Illustrative Examples. These additions are designed to help employers correctly classify workers and avoid misapplication of the tax exemption.
The final regulations also introduce three new TTOC’s:
- TTOC 509 – Visual Artists
- TTOC 510 – Floral Designers
- TTOC 810 – Gas Pump Attendants
These additions reflect occupations where tipping is customary but may not have been consistently documented in earlier guidance.
Next Steps for Employers
Employers should begin preparing now by reviewing all tipped positions to ensure each role aligns with the appropriate TTOC, as incorrect classification could create payroll and compliance issues. Payroll systems will also need updates so they can distinguish between qualified and non‑qualified tips, apply the correct tax treatment starting June 12, 2026, and maintain accurate records for audit purposes. Employers whose systems do not yet support TTOC‑based classification should prioritize these changes. In addition, managers and payroll staff must be trained to understand which roles qualify under the new rules, how tips should be reported and whether any adjustments to onboarding or job coding are necessary. Finally, employers should proactively communicate with employees, since workers may have questions about how the new regulations affect their paychecks and clear guidance will help ensure accurate and consistent tip reporting.
How We Can Help
Partnering with a payroll provider that specializes in payroll tax administration can help ensure your business remains compliant, plus we bring additional expertise through our relationship with the restaurant tax pros at Doeren Mayhew. Contact us today to learn more.
