H.R. 1, formally known as the One Big Beautiful Bill (OBBB Act), is poised to have a significant impact on businesses in the service industry that rely on tipped employees.
Relying on tipped employees is common across a variety of businesses, and this new legislation changes how taxes work in these areas. Specifically, the OBBB Act introduces a “no tax on tips” provision that will shift how businesses manage payroll for employees who receive tips.
The Treasury Department has released a preliminary list of tipped occupations that may be influenced by this legislation. If your employees fall under the outlined categories, it is a good idea to start investigating how this new rule will work and what you need to do to prepare.
What Is the Tipped Occupations List?
With the changes that are coming with the new tax breaks for tipped employees, businesses need guidance about which employees count as ‘tipped employees’ according to the IRS. To that end, the IRS has already begun compiling a tipped occupations list detailing qualified roles, but it has not yet been finalized.
To that end, the Treasury Department has published a preliminary tipped occupations list covering roles that typically received tips before December 31, 2024. This list gives employers a starting point to see whether their employees are likely to qualify for the tax breaks included in the OBBB Act.
However, this list is not yet finalized. The IRS will release an official tipped occupations list, file it with the Federal Register, and open a period for public comment. Once that list is finalized, businesses can begin making permanent adjustments to payroll practices.
Why the Tipped Occupations List Matters for Employers
Employers must understand which positions qualify for favorable tax treatment so payroll and tax reporting remain accurate. Key reasons to track this list include:
- Determining eligibility – Ensures the right employees benefit from the “no tax on tips” provision.
- Avoiding compliance issues – Prevents errors in payroll tax filings.
- Spotting exclusions – Identifies which tipped roles do not appear on the IRS list. For example, certain roles in healthcare, performing arts, and athletics are not currently included and may not qualify for this tax break.
Key Industries Affected
Some of the most common industries impacted by the OBBB Act and the tipped occupations list include:
- Food and Beverage
- Entertainment and Events
- Hospitality
While the preliminary list leans heavily on traditional service-sector jobs, employers in other areas where tipping has become more common should still pay attention. For instance, roles in digital media (such as streamers, podcasters, or influencers) are relatively new, and these emerging occupations may spark future IRS clarification.
Compliance Takeaways for Businesses
As businesses prepare to navigate this shift in tax regulations for certain employees, it is important to check on the official tipped occupations list from the IRS to know exactly who will qualify. Employers should not assume that everyone who receives tips will be on the list.
Once the finalized list has been compared against the list of employees for a given business, payroll systems must be updated to ensure they properly align with the IRS guidance. This will ensure that the qualifying tips are not taxed and that all the other payroll specifications are calculated correctly based on this new regulation.
Of course, as businesses look to adopt the changes handed down from the IRS, they should also note that state laws may differ and that their business must maintain compliance with both federal and local laws. Therefore, the payroll setup must be established to ensure it aligns with the regulations coming from all levels of government.
Conclusion and Next Steps
In the coming weeks, employers should prepare for the IRS to release the finalized tipped occupations list. Now is the time to:
- Review your employee rosters against the preliminary list.
- Identify potential areas of uncertainty.
- Plan system updates in advance.
Because tip credit and tax rules can be complex, it’s smart to work with payroll specialists who understand both the federal and state compliance landscape.
Need assistance with payroll for tipped employees? Reach out to Workforce PayHub for expert tip credit guidance and payroll support.
