H.R. 1, "The One Big Beautiful Bill Act" (the Act), was signed into law on July 4, 2025. H.R. 1 includes several significant changes that are relevant to payors and independent contractors, with some key provisions effective retroactively as of January 1, 2025. The Department of the Treasury and the IRS are expected to continue to issue guidance to clarify how certain provisions will be implemented.
The Act introduces a new federal income tax deduction related to qualified tips which may impact clients who are paying independent contractors.
Key Information Regarding Tips
- Cash Tips are to be reported on 1099 forms
- Qualified Tips are to be reported by payee when filing their individual taxes
Any payer/client must work directly with WorkMarket to configure their account to capture tipped earnings.
What are Qualified Tips
Tips eligible for the deduction are limited to $25,000. "Qualified tips" means “cash tips” received by an individual in an occupation which customarily and regularly received tips on or before Dec. 31, 2024. The Department of Treasury created the Treasury Tipped Occupation Code (TTOC) to identify these occupations. TTOC is a payee level three-digit number which signifies that the individual works in an occupation that customarily and regularly receives tips. You can review the list of TTOC indicators here.
"Cash tips" for purposes of the Act include tips received from customers that are paid in cash or charged. The amount must be paid and determined voluntarily by the payor without any consequence in the event of nonpayment and cannot be the subject of negotiation. This would exclude, for example, mandatory service charges and mandatory gratuities. The treasury secretary is authorized to establish other requirements to qualify for the deduction.
Workers in certain specified service trade or businesses (“SSTB”) are not eligible for the tips deduction. Specified businesses include, for example, those providing services in accounting, health, law, actuarial science, athletics, brokerage services, consulting, financial services or the performing arts. Note - The IRS recently stated that additional guidance will be provided on the application of SSTBs. The IRS further stated that it will not enforce provisions related to the application and impact of SSTBs until the guidance on SSTBs is provided.
What This Means For You
Clients who pay independent contractors qualified tips are required to report cash tips starting in 2026. WorkMarket allows clients to identify the cash-tipped earnings by using Custom Fields.
If your company pays independent contractors tips through WorkMarket it is mandatory to capture the tips appropriately to ensure accurate 1099 reporting. Please take the following steps:
- Review and confirm the applicable Treasury Tipped Occupation Code (TTOC) for your industry and applicable payments from Federal Register: Occupations That Customarily and Regularly Received Tips; Definition of Qualified Tips (ex: 101 Bartenders, 203 Gambling Cage Workers, etc.)
- Contact support@workmarket.com or your account manager to inform them you need to capture qualified tips
- Our team will reach out for next steps and assistance with setting up these your account to properly include TTOC and tipped earnings
*Important note: the custom fields must be uniform so please do not create these without the assistance of a WorkMarket associate. Doing so may result in the codes not being captured correctly and additional 1099 amendment costs.
What to Expect With Year-End Tax Filing
Clients who pay independent contractors’ tips will be included in WorkMarket’s Comprehensive 1099 filing experience. The forms will not be available in the platform as the independent contractors will receive the forms directly via email. There is no additional cost for this filing set up; however, clients may be subject to a fee if 1099 amendments are required due to clients incorrectly tagging the payments or using incorrect codes.
Once the independent contractor receives the 1099, the independent contractor will be able to take the reported cash tip amounts from the 1099 and utilize the reported amount on their individual tax return to claim a deduction for any eligible qualified tip amounts. Note that the deduction will be subject to limitations and other eligibility requirements. Independent contractors may want to consult with tax professionals for further guidance on claiming the deduction.
Additional links:
- https://www.federalregister.gov/documents/2026/04/13/2026-07104/occupations-that-customarily-and-regularly-received-tips-definition-of-qualified-tips
- ADP's One Big Beautiful Bill Resource Page: https://www.adp.com/resources/big-beautiful-bill.aspx
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