Got Tips? There’s a Code for That.

Tips Have Codes Now. Of Course They Do.

Another government requirement? We know. Here’s what employers with tipped employees need to do, and how PayOptions makes it easy.

Remember when a tip was just a nice way to say “thanks for the great service”? Simpler times.

Thanks to the federal “No Tax on Tips” provision, tips now come with their own paperwork. Specifically, they come with occupation codes. Three-digit ones. Because apparently a tip wasn’t official until it had a number.

We know. We can hear the collective sigh from business owners and payroll administrators everywhere.

The good news is that you don’t have to become an IRS reporting expert to get this right. That’s our job. Here’s what you need to know.

So, What’s Changing?

Under the One Big Beautiful Bill Act (OBBBA), eligible employees can deduct up to $25,000 a year in qualified tips on their federal income tax return. The deduction runs from 2025 through 2028.

Before anyone throws a party, here’s what “No Tax on Tips” does not mean:

• Tips still aren’t tax-free at payday. Employers still withhold, and Social Security, Medicare and state and local taxes still apply.
• The deduction is the employee’s to claim when they file their personal return.
• Not every tip qualifies. Tips have to be voluntary. Automatic gratuities and mandatory service charges don’t count, even if your menu politely calls them “suggested.”

Where you come in is reporting. Starting with 2026 Forms W-2, employers must report qualified tips in a new box (Box 12, code TP), along with something called a Treasury Tipped Occupation Code.

So, What’s With the Codes?

The Treasury Department published an official list of about 70 occupations that “customarily and regularly” received tips before 2025. Each one has its own three-digit code, the TTOC.

Bartenders have one. Servers have one. So do hairstylists, valets, delivery drivers and dozens more. In the final rules, floral designers and gas pump attendants made the list too. Somewhere, a gas pump attendant is very proud.

Each tipped employee’s W-2 has to show the code for their job, in Box 14b. Employees who work in more than one tipped role can have up to two codes. Any tips from a job that isn’t on the list get a code of “000.”

In other words, someone has to match every tipped position in your business to the right code. Correctly. For the whole year.

What Does This Mean for Your Business?

If you have employees who receive tips, here’s your (short) homework:

1. List your tipped positions. Think servers, bartenders, bussers, hosts, stylists, drivers and anyone else who takes home tips.
2. Find the matching TTOC for each role. CLICK HERE for the full official list.
3. Send the codes to your PayOptions team. Tell us which employees hold which tipped roles and the code for each. We’ll take it from there.

That’s it. No decoder ring required.

Why Now?

W-2s for 2026 go out by February 1, 2027. That might sound like plenty of time, but tips have to be tracked by occupation all year long. Getting the codes set up in payroll now means a calm January instead of a scramble. Nobody needs a scavenger hunt through a year of tip reports during year-end.

We’ll Handle the Payroll Headache. You’ve Got a Business to Run.

We can’t stop the government from inventing new codes (believe us, we’d love to). We can make sure they’re handled correctly, so your employees get the deduction they’re entitled to and your W-2s go out without a hitch.

Got tipped employees? Let’s talk codes. Reach out to your PayOptions payroll specialist with your tipped positions and their codes. If you aren’t sure which code fits, we’re happy to help you figure it out.

This article is for general information only and isn’t tax or legal advice. Talk to your tax professional about your specific situation.