Week in Insights: Tax-Free Tips List Is Guesswork Absent Guidance

The White House’s list of jobs eligible for “no tax on tips” looks sweeping at first glance, spanning nearly 70 occupations related to food service, hospitality, entertainment, and personal services. But a closer look reveals it’s more of a definitional quagmire than a comprehensive roadmap. Categories are at turns so broad they include everything and so narrow they create obvious omissions.

Take “personal care and service workers,” for instance. In the Bureau of Labor Statistics taxonomy, that’s a catchall category, covering animal care workers, personal care aides, and funeral service workers.

But in the context of tax-free tips, does it include nannies, pet sitters, and tutors—all of which are spelled out separately on the list? What about home health aides, hospice workers, and hospital orderlies—which aren’t? The Treasury Department presumably will have to issue clarifying regulations.

By contrast, some jobs that made the cut are oddly specific. “Event officiants” get their own line item, but frontline health-care workers don’t. As for “home appliance installers and repairers,” if I tip someone who delivers my refrigerator to the curb but doesn’t install it, will they qualify?

Tax law is just this pedantic. Recall that Illinois taxes Twix differently from Snickers because the former has flour—and thus isn’t “candy.” Workers who assume their jobs qualify could find themselves on the wrong side of a test case. And employees won’t be the only ones left wondering; employers likely will want guidance on withholding and reporting.

For now, the biggest takeaway is that the “no tax on tips” pledge is messy and will be difficult to administer. Until categories are clarified, workers and employers will need to guess where the line between covered and excluded professions really lies.

—Andrew Leahey

Event DJs are on the White House’s list of occupations exempted from paying tax of tips.

Photographer: Guillaume Baptiste/AFP via Getty Images

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined the OECD’s “side-by-side” tax deal for the US, the IRS’s rework of the test employers use to calculate tax-free fringe benefits, and more.

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