What the final rule does
The U.S. Department of the Treasury has issued the final regulations implementing the 'No Tax on Tips' deduction. The rules identify the occupations that customarily and regularly received tips as of December 31, 2024 — the cut-off date Congress set in the underlying law — and define what counts as a 'qualified tip' eligible for the deduction. The final regulations carry forward every occupation code from Treasury's earlier proposed guidance and add three new ones.
Listed Occupations and TTOCs
Treasury assigns each eligible role a Treasury Tipped Occupation Code (TTOC). These codes are the official identifiers employers will use when reporting tipped wages on 2026 information returns. The list covers the expected categories — food and beverage service, hospitality, personal services like hair styling and nail care, ride-share and delivery drivers — and now extends to three additional roles added in the final version. If your team's role isn't on the list, the deduction does not apply, regardless of whether tips are received in practice.
What counts as a 'qualified tip'
A qualified tip must be voluntary, paid in cash or its equivalent (including cards and electronic transfers), and given by the customer who received the service. Mandatory service charges, automatic gratuities added to large-party checks, and pooled tips collected from non-tipped staff continue to be treated as wages — not as tips for purposes of this deduction. The final rule keeps the IRS's traditional 'voluntary and customer-determined' definition without introducing new categories.
What employers need to do for 2026
Employers of workers in Listed Occupations will need to report tip income using the new TTOC values on 2026 tax forms — W-2 entries and the related payroll filings. Payroll providers (including ADP RUN, which has already updated its TTOC drop-down to match the finalized codes) will surface the codes in their interfaces, but the responsibility to classify each employee correctly stays with the employer. Plan now for year-end: confirm each tipped employee is mapped to the right TTOC and that your payroll product is on a version that includes all updated codes.
What this doesn't change
The new tax treatment of tips is independent of the Fair Labor Standards Act (FLSA). Federal minimum-wage rules, tip credit eligibility, the requirement that pooled tips be distributed only among customarily tipped employees, and state wage laws all remain exactly as before. The 'No Tax on Tips' deduction is purely a federal income-tax benefit for the worker — it does not reduce the employer's obligation to pay at least the federal (or higher state) minimum wage, including any tip-credit components.
Where to read the final rule
The full text of the final regulations, including the complete list of TTOCs and Treasury's explanatory preamble, is published on the Federal Register's public-inspection page: https://public-inspection.federalregister.gov/2026-07104.pdf. If you need help mapping your team to the right codes or want to understand whether a specific compensation arrangement qualifies, contact us — we can walk through your payroll setup before the 2026 reporting season starts.