By Jack Cumming
On Friday, September 19, the IRS issued guidance on occupations qualifying for deductible treatment of gratuity payments. The announcement was included in IRS Newswire issue number IR-2025-92. Although the proposed regulations are as yet “unpublished,” they are scheduled to be published on 09/22/2025. The “unpublished” regulations can be downloaded by clicking on this sentence.
Bonus or Tip?
Many resident holiday bonus programs recognize employees in lieu of tips. They might, therefore, be technically classified as gratuities, giving the receiving employees the tax benefit. For instance, the description for Treasury Tipped Occupation Code 103 includes “Serve food to individuals outside of a restaurant environment, such as in hotel rooms, residential care facilities, or cars.” It cross-references the Standard Occupational Code 35-3041.
Some employers may deny this tax benefit to employees by claiming that holiday bonuses cannot be “tips” or “gratuities” because tipping is prohibited in the community. This is something that employers may want to discuss with a qualified tax advisor. It would be unfortunate to penalize employees unnecessarily if a favorable interpretation is available.
Employees may also want to consult with a tax advisor, either collectively or individually, to determine if they are eligible for the deduction. The IRS advises that “Section 70201(a) of the law added new section 224 to the Code providing an income tax deduction for ‘qualified tips’ that are received during the taxable year by individuals in an occupation that customarily and regularly received tips on or before December 31, 2024.”
Ideally, of course, LeadingAge or another trade association with strong contacts in Washington, DC, might be able to obtain a revenue ruling from the IRS that holiday bonus payments in residential care facilities meet the test for deductibility. That would require quick action since the deduction is available for federal tax years 2025 through 2028, so it will apply to holiday payments received this year.
