Michael Chittenden’s commentary appeared in a Tax Notes story about the deduction for tips under section 224, enacted in the One Big Beautiful Bill Act (P.L. 119-21), which allows single filers who earn up to $150,000 annually and married couples who earn up to $300,000 to deduct up to $25,000 in qualifying tipped income. The proposed regulations (REG-110032-25) for the qualified tips deduction include a list of jobs that Treasury and the IRS have determined customarily receive tips.
However, under section 224(d)(2)(B), tips received from a job that is a specified service trade or business (SSTB) as defined in section 199A(d)(2) don’t qualify for the deduction.
According to Michael, “The regs lay bare the potential for some really disparate treatment of similar taxpayers.” Michael pointed to an example in the regs, noted that a pianist who receives tips from playing in a hotel lobby can be either eligible or disqualified for the deduction depending on the nature of his employment. Under the example given, if the pianist is employed by the hotel, then he is eligible to deduct the tips he receives.
However, Chittenden explained that under those same facts, if the pianist is an independent contractor, then his work is considered a performing art, which is an SSTB, and thus he’s not eligible to deduct the tips.
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