Contributing authors @chrisfilby and @kellyjaye
The United States Department of Treasury Regulations for ‘No Tax On TIps’ screws over married couples – and may become the first test of Supreme Court case Looper Bright (aka Chevron deference).
The Good:
The One Big beautiful Bill regarding tax on tips is very clear, and language of the law is easily discernible in black-and-white.
The ‘No Tax on Tips’ was added as Section 224 of the Internal Revenue Code. The language is just as clear but the Treasury decided to apply old long-standing policy rather than follow the new law as it was written.
During the 2024 presidential campaign at a rally in Las Vegas, Nevada, presidential candidate Donald Trump talked with people in the hospitality industry and announced he would come up with a policy called ‘No Tax On Tips’. After the 2024 election, he worked with the House and Means Committee to try to find a way to make this new policy happen.
The House Ways and Means committee managed to get $25,000 of tip income exempt per individual, and this was very clearly written into the bill. This passed the House and Senate, unchanged.
“The One, Big, Beautiful Bill Puts American Workers First“
The Bad
However, the new tax code for ‘No Tax on Tips’, published by the Internal Revenue Service per regulations from the Department of Treasure, was changed to ‘per return‘, not ‘per individual‘. Implementing it this way allows an individual the filer take up to the $25,000 deduction. Unfortunately, for married couples that are both eligible, they can claim only the $25,000 deduction, not $50,000 deduction!
& The Uglies
To even get the $25,000 deduction, the married couple can not file separately. In order to receive the $25,000 deduction, they must file a joint return. They are not allowed to file ‘married filing separately’ and both claim $25,000 on their individual returns.
Then there is a whole padre of caveats which describe what is and what is not considered qualified tip income.
The new tax code determines who gets and doesn’t get the deduction using the “specified service trade or business” (SSTB) exception.
Special note: People engaged in ‘Only Fans’ and the like are too an exception under IRC Section 199A(d)(2).
Changing Definitions
As a tax professional with almost four decades of experience, I do not disagree that sometimes you have to spell things out so that it is painfully clear and so that no one misinterprets what the rules. ~ Chris Filby
That being said, it is important to understand that those who write regulations should have some reasonable knowledge of the industries that they regulate. In the Restaurant business the tip procedure may vary from one to another. In particular, when groups of people (known as parties) pay on the same check it is a policy of the restaurant to have a minimum amount added to the bill so that the weight staff and whoever they may be sharing tips with are properly compensated. This is agreed-upon voluntarily by the party prior to them being seated. There is nothing in this agreement that says they can’t increase that amount; that’s just a minimum amount.
To illustrate:
Bill for a large party is $1,000 ==> minimum gratuity 20% ==> minimum gratuity = $200.
$200 would be added to the bill for proper compensation would be provided to the weight staff.
The group may voluntarily choose to increase that gratuity to 30% ($300).
Gratuity is not Qualified Tip Income: according to the Department of Treasury, in their infinite wisdom (sarcasm intended), decided that gratuity is not a tip. They define gratuity as a “fixed price part of a contractual agreement”; in other words, it’s part of a sale that is not voluntary and therefore does not qualify as ‘qualified tip income‘. In another case where hospitality workers are screwed is when receiving tips for a venue event (i.e. Wedding). It is considered gratuity. If that is a person’s sole employment, then none of their income would qualify, missing out on the $25,000. Would they not then grossly unfairly treated in the eyes of the law in accordance with the Fifth Amendment?
Additionally, the Treasury has rules on what types of payment are eligible for the tips deduction:
Ineligible: Event tickets, meals, services, and “other assets that are not exchangeable for a fixed amount in cash (such as most digital assets)”.
This rule is vague so it is not definitive if it excludes crypto/bitcoin.
Eligible: Cash, check, credit card, debit card, gift card, electronic or mobile payments settled in cash, and certain tokens (including casino chips).
The Looper Bright Case
aka Chevron Deference
LOPER BRIGHT ENTERPRISES v. RAIMONDO
No. 22–451, 45 F. 4th 359 & No. 22–1219, 62 F. 4th 621, vacated and remanded.
- Syllabus [Syllabus] [PDF]
- Opinion, Roberts [Roberts Opinion] [PDF]
- Concurrence, Thomas [Thomas Concurrence] [PDF]
- Concurrence, Gorsuch [Gorsuch Concurrence] [PDF]
- Dissent, Kagan [Kagan Dissent] [PDF]
What the Department of Treasury did concerning ‘No Tax on Tips’ is about Executive Branch agency overreach, such as the Looper case was all about.
The Executive Branch is not the Legislative Branch and while Congress may want to defer certain things specifically to agencies, that does not mean those agencies are allowed to rewrite federal statues. Agency heads only get to form regulations around a federal statute so the statute can be more easily followed. In this case, not only have they denied a married individual an opportunity to take a $25,000 deduction on their tax return but they have redefined the meaning of the word tip in a way that stretches credulity.
It may be true you won’t find married couples both working in the hospitality industry in certain places in the United States such as Las Vegas, but it is not unusual for married couples to be involved in the hospitality industry where both individuals would receive tip income in excess of $25,000. The Department of Treasury has failed its mission by applying old regulation to new law.
Note: There is a huge amount of law that has bad regulation that is outside the scope of this article. Nonetheless, this needs to be revisited to reflect the intent of Congress and in terms of the tax code. They must stop punishing the American people for trying to comply with a tax code that they nor any single individual in the Internal Revenue Service, attorney, tax commissioner, or CPA on in the United States can quote from chapter-and-verse because of the ridiculous amount of complexity due to regulations.
Note’s Fun fact: There are 9,834 sections in the IRS Tax Code, and many have detailed subsections; total word count exceeds 4 million.
Bobby Blunt: “Oh good – so the 19% of people in our country that can’t read certainly can’t understand that“
To Sum It All Up
Even the Bible, which has way fewer books (66; if including the non-canon books known as The Apocrypha, 80), chapters (1,189) and over four million less words (about 788,260), have few people who can factually claim to be experts on what it says and what it means. The Bible has been interpreted and reinterpreted many times over the last several millennia.
If we learned nothing else from this exercise, it should be the tax code needs to be completely scrapped and rewritten in plain language. So plain a fifth grader can understand it and thus regulations would not even be necessary. That may well put an entire industry or at least several out of business but the American people will be able to sleep at night and pay much less out of their pockets.
For now, though, let’s get the ‘No Tax on Tips’ be as President Trump intended!
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Hearing 09.10.25 https://www.youtube.com/live/kB2zq7ykPTg?si=5J0Y6qBEt0f6iH3-