You Make the Call - Feb. 12, 2026

Question: Jada is a bartender (a tipped occupation according to the IRS). One night, a table of eight had an automatic 18% service charge added to their bill. The restaurant later distributed $60 of that service charge to Jada. She heard about the One Big Beautiful Bill Act (OBBBA) and assumed it meant that tips are no longer taxable. Can Jada deduct this $60 as a qualified tip deduction on her 2025 tax return?  

Answer: No. The OBBBA created a below-the-line deduction for “qualified tips” under §224, but it does not make every “tip-like” payment deductible. If allowed, the deduction is claimed separately as an additional deduction on Schedule 1-A and carried to Form 1040, Line 13b. 

Although Jada works in a tipped occupation, the $60 she received was an automatic service charge. Because the charge was mandatory and the customer could not choose the amount, it is a service charge rather than a tip.  

According to IRS guidance, amounts distributed from this automatic charge do not qualify as tips. Therefore, the $60 does not meet the criteria for a “qualified tip” under §224(d), so the §224 deduction does not apply. It is treated as wages when distributed.