The Treasury Department and Internal Revenue Service have proposed rules expanding a tax deduction for tipped wages to occupations that "customarily and regularly" receive tips, explicitly naming dancers, entertainers, performers and digital content creators. At the same time, the draft regulations carve out a hard exclusion: "Amounts received for prostitution services and pornographic activity are not qualified tips." The rules also state that payments for services that are felonies or misdemeanors under applicable law would not qualify.
Why the exclusion is more than an anti-crime measure
Denying deductions for income tied to criminal activity is straightforward. But the blanket ban on "pornographic activity" raises questions that go beyond illegality. Prostitution is legal in parts of the United States, and many forms of erotic or sexual content are lawful everywhere. A broad exclusion therefore reads less like an anti-crime rule and more like a moral judgment implemented through the tax code.
Who decides what counts as pornography?
The central enforcement problem is definitional. If tips for "pornographic activity" are excluded, the IRS would be put in the position of deciding what counts as pornography. That creates thorny practical questions: Are nonsexual fetish photos pornographic? Do partially clothed cam shows qualify? Is stripping pornography? What about burlesque, erotic performance art, sex-adjacent therapy demonstrations, or erotic video games?
"The distinction between pornography and other material that just so happens to depict sex has long vexed the nation's finest legal minds," observed journalist Andrew Duehren, noting that enforcing the exclusion could require auditors to review creators' content to determine whether tips qualify for the deduction.
Under the proposed framework, the tip-deduction benefit is itself capped (a figure of $25,000 is referenced in discussions of enforcement implications). That means an auditor could be asked to view a taxpayer's content, decide whether it is pornographic, and deny a deduction for tips up to the cap — an intrusive and subjective exercise.
Practical consequences and privacy concerns
Many sex workers and creators already report vague job titles such as "model," "actress," or "content creator." Unless the IRS launches a broad auditing program across creative industries, enforcement of the pornographic-activity exclusion could translate into targeted scrutiny of specific platforms and creators. That, in turn, risks increased monitoring of payment apps, bank deposits and other private transactions as authorities search for unreported or ineligible tips.
Even if the exclusion proves difficult to apply consistently, it could produce tangible harms: discriminatory treatment of sex workers, invasive audits, unequal enforcement, and expanded financial surveillance that chills lawful expression and commerce.
Related legal and policy developments
Several parallel disputes highlight the broader tensions between regulation, free expression and privacy.
Supreme Court subpoena fight
The case First Choice Women's Resource Centers, Inc. v. Platkin concerns a faith-based pregnancy center that challenged state subpoenas seeking information about its doctors and donors. The group argued the subpoenas were unnecessary and could chill protected advocacy; the American Civil Liberties Union of New Jersey has warned that investigatory subpoenas seeking sensitive donor information can threaten advocacy across the political spectrum. Observers following oral argument have suggested the Supreme Court may consider whether federal courts should hear such constitutional claims.
Congressional debates on online safety
A House subcommittee recently considered bills addressing minors' use of digital platforms, including versions of the Kids Online Safety Act (KOSA). Debate focused on whether removing a "duty of care" standard preserves constitutional resilience while still protecting children, and how platform duties could be enforced without unduly chilling speech.
Courtroom and market developments
Other notable items include a Supreme Court copyright case in which justices questioned whether aggressive enforcement could lead to loss of internet access for users, and the emergence of sex-worker–run platforms seeking to offer creators better terms and charge-back protections. Meanwhile, some state proposals aim to block use of VPNs as part of age-verification schemes—measures civil-liberties advocates argue are privacy-invasive and ineffective.
Finally, the U.S. Court of Appeals for the Second Circuit recently upheld a ruling protecting certain speech about so-called "abortion pill reversal," illustrating how courts continue to shape the boundaries of regulated speech and health-related claims online.
Implications
A narrow exclusion for tips tied to unlawful activity is easy to justify; a sweeping ban on "pornographic activity" is not. The proposed rule forces regulators into complex content judgments, invites uneven enforcement, and risks increased financial surveillance of creators and marginal workers. Policymakers should weigh whether tax policy is the right tool for policing morality, and whether the practical enforcement costs and civil‑liberties consequences justify the proposed exclusion.
