© 2026 American Payroll Institute, Inc.
May 1, 2026 Volume 34, Issue 5
IRS Finalizes Tip Occupations List, Guidance for OBBBA Provision
On April 10, the IRS issued final regulations to provide
guidance on the “no tax on tips” provision of Public Law
119-21, known as the One Big Beautiful Bill Act (OBBBA).
The final regulations were published in the Federal
Register on April 13 and are effective on June 12 [91 F.R. 19026,
4-13-26]. The final regulations have a few changes from
September’s notice of proposed rulemaking (90 F.R. 45340,
9-22-25 see PAYROLL CURRENTLY, Issue 10, Vol. 33).
Background
The OBBBA added IRC §224, which defines the income
tax deduction for qualified tips. For tips to qualify for the
deduction, they must be received by an individual who is
employed in an occupation that was defined as customarily
and regularly receiving tips on or before December 31, 2024.
Employers still must withhold federal income, social security,
and Medicare taxes from these tips. To claim the tax deduction,
a worker must both work in an occupation on the list and
receive qualified tips. The deduction is retroactive to January 1,
2025, and expires on December 31, 2028.
The OBBBA provides eligible individuals a deduction “of an
amount equal to the qualified tips received during the taxable
year” up to $25,000. The amount allowed as a deduction will
be reduced by $100 for each $1,000 an individual earns above
an adjusted gross income of $150,000 ($300,000 for joint filers).
IRC §224(f) requires married taxpayers to file returns jointly
to receive the deduction. The deduction is not available for a
married taxpayer who files separately.
More information about the OBBBA is available on
PayrollOrg’s website in the Payroll Hot Topics section under the
Compliance tab.
Qualified tips defined
The final regulations adopt the definition of “tips” from
the proposed regulations: “Tips are amounts paid by customers
for services that are in excess of the amount agreed to, required,
charged, or otherwise reasonably expected to have to be paid
for the services in an arm’s-length transaction.” Whether the tip
is a “qualified tip” depends on if the other requirements under
IRC §224 and the final regulations are satisfied.
IRC §224(d)(1) defines “qualified tips” as cash tips received,
directly or indirectly, by an individual in an occupation that
customarily and regularly received tips on or before December
31, 2024.
“Cash tips” must be paid in a cash medium of exchange,
such as cash, check, credit card, debit card, gift card, tangible
or intangible tokens that are readily exchangeable for a
fixed amount in cash (such as casino chips), or another form
of electronic settlement or mobile payment application
denominated in cash. Cash tips include foreign currency. Cash
tips would not include items paid in any medium other than
cash, such as event tickets, meals, services, or other assets that
IRS Finalizes Tip Occupations List, Guidance for OBBBA
Provision. ......................................................................................1
DOL Proposes Rule to Clarify Joint Employer Status...............3
ICE Updates Fact Sheet for Form I-9 Violations. .......................4
IRS Announces 2026 Foreign High-Cost Locations..................6
IRS Revises Forms 941-X, 944-X, and Instructions....................6
Federal Government Will Not Update Civil Penalty Amounts
for 2026..........................................................................................7
Treasury Will Be Responsible for Collecting Defaulted
Student Loans..............................................................................7
IRS Releases Draft Forms 1099-MISC and 1099-NEC,
Instructions..................................................................................7
IRS Proposes Regulations for Increase in Reporting
Threshold. .....................................................................................8
IRS Releases Publication on Withholding for 2026 With
OBBBA Updates...........................................................................8
Free Reference Book Answers Payroll Questions......................9
Texas Restaurant Ordered to Pay More Than $21 Million
for Tip Violations.........................................................................9
Payroll Solutions. ..........................................................................10
Updates From the U.S. Supreme Court on Payroll-Related
Cases. ...............................................................................................10
4th Circuit Rules Fire Department Chiefs Are Exempt HCEs..... 11
IRS Expands Business Tax Account to Include More
Taxpayers................................................................................... 12
IRS Creates Online Tool to Help Resolve Tax Debt................. 12
DOJ Creates National Fraud Enforcement Division. ............12
Employers Should Be Prepared for Form I-9 Inspections.... 13
USCIS Updates Guidance on TPS for Ethiopia, Myanmar,
and South Sudan. ....................................................................14
State and Local Highlights. .........................................................15
PayrollOrg Opposes Taxpayer Experience Improvement
Act................................................................................................ 17
PayrollOrg Comments on DOL Proposed Misclassification
Rule.............................................................................................. 17
PayrollOrg Urges D.C. to Distinguish EWA From Loans....... 18
Starting with this issue of PAYROLL CURRENTLY, references to The Payroll Source® refer to the 2026 edition of the book,
which is printed and available online on the PayrollOrg Bookshelf. The online version is updated throughout the year.
May 1, 2026 Volume 34, Issue 5
IRS Finalizes Tip Occupations List, Guidance for OBBBA Provision
On April 10, the IRS issued final regulations to provide
guidance on the “no tax on tips” provision of Public Law
119-21, known as the One Big Beautiful Bill Act (OBBBA).
The final regulations were published in the Federal
Register on April 13 and are effective on June 12 [91 F.R. 19026,
4-13-26]. The final regulations have a few changes from
September’s notice of proposed rulemaking (90 F.R. 45340,
9-22-25 see PAYROLL CURRENTLY, Issue 10, Vol. 33).
Background
The OBBBA added IRC §224, which defines the income
tax deduction for qualified tips. For tips to qualify for the
deduction, they must be received by an individual who is
employed in an occupation that was defined as customarily
and regularly receiving tips on or before December 31, 2024.
Employers still must withhold federal income, social security,
and Medicare taxes from these tips. To claim the tax deduction,
a worker must both work in an occupation on the list and
receive qualified tips. The deduction is retroactive to January 1,
2025, and expires on December 31, 2028.
The OBBBA provides eligible individuals a deduction “of an
amount equal to the qualified tips received during the taxable
year” up to $25,000. The amount allowed as a deduction will
be reduced by $100 for each $1,000 an individual earns above
an adjusted gross income of $150,000 ($300,000 for joint filers).
IRC §224(f) requires married taxpayers to file returns jointly
to receive the deduction. The deduction is not available for a
married taxpayer who files separately.
More information about the OBBBA is available on
PayrollOrg’s website in the Payroll Hot Topics section under the
Compliance tab.
Qualified tips defined
The final regulations adopt the definition of “tips” from
the proposed regulations: “Tips are amounts paid by customers
for services that are in excess of the amount agreed to, required,
charged, or otherwise reasonably expected to have to be paid
for the services in an arm’s-length transaction.” Whether the tip
is a “qualified tip” depends on if the other requirements under
IRC §224 and the final regulations are satisfied.
IRC §224(d)(1) defines “qualified tips” as cash tips received,
directly or indirectly, by an individual in an occupation that
customarily and regularly received tips on or before December
31, 2024.
“Cash tips” must be paid in a cash medium of exchange,
such as cash, check, credit card, debit card, gift card, tangible
or intangible tokens that are readily exchangeable for a
fixed amount in cash (such as casino chips), or another form
of electronic settlement or mobile payment application
denominated in cash. Cash tips include foreign currency. Cash
tips would not include items paid in any medium other than
cash, such as event tickets, meals, services, or other assets that
IRS Finalizes Tip Occupations List, Guidance for OBBBA
Provision. ......................................................................................1
DOL Proposes Rule to Clarify Joint Employer Status...............3
ICE Updates Fact Sheet for Form I-9 Violations. .......................4
IRS Announces 2026 Foreign High-Cost Locations..................6
IRS Revises Forms 941-X, 944-X, and Instructions....................6
Federal Government Will Not Update Civil Penalty Amounts
for 2026..........................................................................................7
Treasury Will Be Responsible for Collecting Defaulted
Student Loans..............................................................................7
IRS Releases Draft Forms 1099-MISC and 1099-NEC,
Instructions..................................................................................7
IRS Proposes Regulations for Increase in Reporting
Threshold. .....................................................................................8
IRS Releases Publication on Withholding for 2026 With
OBBBA Updates...........................................................................8
Free Reference Book Answers Payroll Questions......................9
Texas Restaurant Ordered to Pay More Than $21 Million
for Tip Violations.........................................................................9
Payroll Solutions. ..........................................................................10
Updates From the U.S. Supreme Court on Payroll-Related
Cases. ...............................................................................................10
4th Circuit Rules Fire Department Chiefs Are Exempt HCEs..... 11
IRS Expands Business Tax Account to Include More
Taxpayers................................................................................... 12
IRS Creates Online Tool to Help Resolve Tax Debt................. 12
DOJ Creates National Fraud Enforcement Division. ............12
Employers Should Be Prepared for Form I-9 Inspections.... 13
USCIS Updates Guidance on TPS for Ethiopia, Myanmar,
and South Sudan. ....................................................................14
State and Local Highlights. .........................................................15
PayrollOrg Opposes Taxpayer Experience Improvement
Act................................................................................................ 17
PayrollOrg Comments on DOL Proposed Misclassification
Rule.............................................................................................. 17
PayrollOrg Urges D.C. to Distinguish EWA From Loans....... 18
Starting with this issue of PAYROLL CURRENTLY, references to The Payroll Source® refer to the 2026 edition of the book,
which is printed and available online on the PayrollOrg Bookshelf. The online version is updated throughout the year.
