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Another Question on No Tax on Tips

Forum|Forum|5 months ago
January 21, 2026
4 replies
25 views

I have a client filing Schedule C as a pet groomer. The occupation itself qualifies for NTOT. While he receives tips, he does not receive any Forms 1099 or other information statements. I get that he won't qualify for NTOT.

However, the sole employee is his spouse. She is paid on Form W-2. I am getting hung up on the W-2 worksheet, Part 3, Question 10 "I own or have partial ownership in this company". I read the proposed regulation dated 9/22/2025 and to me, it is as clear as mud. So by now, you probably know what I am going to ask: for this purpose, does the spouse have ownership attributed to her?

ProSeries Professional

Best answer by BobKamman

@Frustrated-in-IL is in Illinois; if his clients are, that's not a community property state.

I think the ownership question matters only if the payor is owned or partially owned by the payee. What's important is who owns the pet, not who owns the business.

In my opinion, disallowing tips to self-employed people who don't receive 1099s comes under the "absurd result" rule of statutory construction that means the literal reading of Section 224(a) can be thrown out. I'm taking the deduction for my self-employed clients who do personal-service work. You do what you want with yours. When Congress and/or Treasury clears this up, you can always file amended returns.

Just-Lisa-Now-

Intuit Community Champion

community property state?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

BobKammanAnswer

Level 15

@Frustrated-in-IL is in Illinois; if his clients are, that's not a community property state.

I think the ownership question matters only if the payor is owned or partially owned by the payee. What's important is who owns the pet, not who owns the business.

In my opinion, disallowing tips to self-employed people who don't receive 1099s comes under the "absurd result" rule of statutory construction that means the literal reading of Section 224(a) can be thrown out. I'm taking the deduction for my self-employed clients who do personal-service work. You do what you want with yours. When Congress and/or Treasury clears this up, you can always file amended returns.

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Frustrated-in-ILAuthor

Level 8

(9) No ownership in or employment by payor. A tip received by an employee or other service provider who has an ownership interest in or is employed by the payor of the tip is not a qualified tip.

Bob, I went back and re-read above again and I think your explanation is correct. Thank You!

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Frustrated-in-ILAuthor

Level 8

My original question though still is unanswered. How do I answer the question on the W-2 worksheet, Part 3, Question 10?

Also, given Bob's interpretation, why is the question even there?

IRonMaN

Level 15

Looks like a "no" to me.

@Frustrated-in-IL sounds like tips could fill in the open slot for all of the time you spent last year researching energy credits. 😀

Slava Ukraini!

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Frustrated-in-ILAuthor

Level 8

I unfortunately think you might be right. Even something simple is complicated.

IMO, the best part of the OBBB was the repeal of the energy credits. Too much time was spent determining nothing would qualify. Anyway, my time saved there is now being spent on tips!

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Terry53029

Intuit Community Champion

@Frustrated-in-IL If you like Bob's answer you should mark it as best answer. I did it for you this time, and supprised it let me

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Frustrated-in-ILAuthor

Level 8

Apologies - have been away for a few days. Thank you. Yes, I do believe Bob's answer is correct and I wish/hope the W-2 worksheet will be clarified because even now when I look at it, I still am confused as to what they are getting at.

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taoseno

Level 5

The tips are not on a 1099. I thought that IRS Notice 2025-69 says the 1099 is not necessary?

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taoseno

Level 5

Notice 2025-69 PDF clarifies for workers how to determine the amount of their deduction without receiving a separate accounting from their employer for cash tips or qualified overtime on information returns such as Form W-2 or Form 1099, as those forms remain unchanged for the current tax year. It also provides transition relief to workers who receive tips in the course of a specified service trade or business.

What am I missing?

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TaxGuyBill

Level 15

@taoseno wrote:

Notice 2025-69 PDF

What am I missing?

Bottom of page 16.

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