Why does this matter? Because firms that move fast can turn a technical change into a repeatable, high-margin service line over yet another compliance fire drill.
Under the law, qualified tips must be paid voluntarily, not negotiated or required. Customers-only must determine tip amounts, meaning automatic gratuities and service charges are out.
The IRS has also released a detailed tipped occupation framework that covers core industries like restaurants, hospitality, salons, gaming, delivery, and more, laying out nearly 70 roles grouped into eight categories.
Starting in 2026, W-2s will carry new occupation codes and separate reporting for qualified tips, giving the IRS a clearer view of who is earning what. Now you see why it matters more.
This tips issue equates to more visibility, more dollars on the table, and more client confusion. The storm doesn’t get more “perfect” than that.
For employees in qualifying occupations, they can exclude up to $25,000 of qualified tips from federal income tax, but still subject to FICA and possible state income tax. Employers, on the other hand, will continue to owe FICA but can leverage or expand the longstanding FICA tip credit on properly reported tips.
For clients, the risks are ample. Point-of-sale (POS) and payroll systems often don’t cleanly reconcile. Service charges get commingled with tips, and cash tips historically go underreported. If you don’t help clients reset their processes now, someone else will, like a general business consultant who charges more than you. That leaves you coming in after the fact to explain why they heard about the opportunity from another adviser first.
The firms that win won’t just know the rules, they’ll package them. A Tip Credit in a Box option enables firms to deliver consistent value across dozens of service-industry clients without reinventing the wheel each time. Think of it as an off-the-shelf offering. No muss, no time-draining fuss.
Now imagine what this package would look like:
A rapid opportunity assessment: Quick questions on industry, number of tipped staff, average tips, POS usage, and sales to prioritize high-value cases. Consider a likely example where a single restaurant with 10 tipped employees and $6,000 in average tips per worker can easily generate a five-figure annual credit.
A clear data checklist: POS tip reports, payroll summaries, service-charge breakdowns, employee roles, and tip-pooling documentation so staff know exactly what to request and why.
A repeatable workflow: Intake → POS vs. payroll reconciliation → occupation and qualified tip verification → quarterly monitoring → final FICA tip credit calculation and implementation plan.
When you can show a client, for example, $11,000 in new credits in exchange for a $4,000 fixed advisory fee, the conversation shifts from “Why is this so expensive?” to “Why didn’t we do this sooner?”
Where most firms get stuck is not in lack of understanding the law, but in consistently conducting confident, value-driven conversations at scale. That’s where Navi and Tip Calc come in to help — big time.
Navi acts as an AI advisory copilot, helping you rehearse FICA tip credit discussions, build agendas, handle objections like “Don’t you already do this on my tax return?”, and fine-tune your language before you ever talk to a client.
After client calls, uploading meeting transcripts allows Navi to score your performance on areas like tone, empathy, and strategic insight so advisory becomes a coachable skill across the whole team, and not just something locked in a partner’s head.
Tip Calc handles the heavy lifting on the technical side. You or your staff upload POS and payroll data (or connect integrations), and the engine calculates the FICA tip credit, flags suspicious underreporting, and produces exportable results for your tax software and workpapers. The compliance calculation is priced separately, while your real margin sits in the advisory layer you design around it.
Right now, clients are hearing “no tax on tips” from the media and social feeds long before they hear it from their accountant. This gap is either a threat or an invitation. Cash in on the invitation!
If you start with a clean narrative, a productized Tip Credit in a Box and AI-enabled tools like Navi and Tip Calc, you not only protect your compliance work, but you also reposition your firm as the year-round, insight-driven go-to source of truth your service-industry clients need.
Join us on Feb. 11 at 2:00 p.m. to learn how to confidently lead the FICA Tip Credit conversation, apply the latest IRS guidance, and build a repeatable advisory model that turns change into opportunity. This webinar is free for PICPA members and offers 1 credit of CPE.
Jody Padar, CPA, also known as “The Radical CPA,” is the co-founder of XcelLabs, a training and technology platform that offers solutions to help accountants use AI to build fluency and strategic thinking. Contact XcelLabs for more information.
Backed by the PICPA, XcelLabs is helping CPAs leverage AI to expand advisory capabilities, strengthen firms, and keep the profession future-ready.
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Statements of fact and opinion are the author's responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.