Tips / Who qualifies
26 U.S.C. § 224 · tax years 2025–2028
No tax on tips: who qualifies and how much
Tips are still taxed when you earn them. For 2025 through 2028, the law adds a deduction of up to $25,000 a return for qualified tips received in one of the 71 occupations on the IRS list.
Checklist: do you qualify?
- Listed occupation. Your job is on the IRS list of occupations that customarily and regularly received tips on or before December 31, 2024. Each has a three-digit Treasury Tipped Occupation Code, grouped from Beverage and food service (100s) to Transportation and delivery (800s). Browse the list.
- The tip was voluntary. The customer decided the amount, it was not negotiated, and nothing happened if they didn’t pay. Service charges the customer can’t modify don’t count.
- Paid in cash or a cash equivalent. Cash, check, card, gift card, or a payment app all work. Non-cash items don’t.
- Reported. On Form W-2, Form 1099-NEC, 1099-MISC, 1099-K, or by you on Form 4137. From 2026 the W-2 shows them in box 12 code TP with occupation codes in box 14b (what those mean).
- Valid SSN for the person who received the tips.
- Married? File jointly.
Cap and income phaseout
| Single / head of household | Married filing jointly | |
|---|---|---|
| Maximum deduction | $25,000 | $25,000 (per return, not per spouse) |
| Phaseout starts above MAGI of | $150,000 | $300,000 |
| Reduction | $100 per whole $1,000 over the threshold (Schedule 1-A drops partial thousands) | |
| $25,000 fully phased out at | $400,000 | $550,000 |
| Married filing separately | Not allowed | |
Example: a bartender filing single with $18,000 of qualified tips and $163,800 of MAGI is 13 whole thousands over. $1,300 comes off, leaving $16,700.
What counts as a qualified tip
Counts
- Cash and charged tips from customers
- Tips paid by check, gift card, or a payment app in dollars
- Tip-pool and tip-sharing amounts you receive as an employee
- A voluntary tip added on top of a service charge
Doesn’t count
- Automatic gratuities and service charges the customer can’t change
- Negotiated amounts
- Tips in an occupation not on the IRS list
- Unreported tips (not on a W-2, 1099, or Form 4137)
How you claim it
Tips go on Schedule 1-A, Part II. On the 2025 form, employee tips are line 4 (Form W-2 box 7 or Form 4137) and self-employed tips are line 5, limited to net profit. Line 7 caps the total at $25,000 and line 13 is the deduction. For 2025, when your W-2 has no separate tips figure, Notice 2025-69 also lets you use the Forms 4070 you gave your employer.
If you also work overtime, that is a separate deduction with its own cap, and the same dollars can’t count as both.
Questions
Are tips tax-free now?
Not exactly. Tips are still income and still subject to social security and Medicare tax and withholding. For tax years 2025 through 2028, eligible workers can deduct up to $25,000 of qualified tips on Schedule 1-A, whether they itemize or not. The deduction phases down once modified adjusted gross income is over $150,000, or $300,000 on a joint return.
Who qualifies for the no tax on tips deduction?
Employees and self-employed workers who received qualified tips in an occupation on the IRS list of occupations that customarily and regularly received tips on or before December 31, 2024. The person who received the tips needs a Social Security number valid for employment on the return, and a married taxpayer must file jointly. The tips must be reported on Form W-2, Form 1099-NEC, 1099-MISC, 1099-K, or by the worker on Form 4137.
Is the $25,000 tips cap per person or per return?
Per return. The IRS says the $25,000 limit applies to single filers and married couples filing jointly alike, so two tipped spouses on a joint return share one $25,000 cap. Overtime is different: its cap doubles to $25,000 on a joint return.
Do automatic gratuities and service charges count?
Generally no. Under the final regulations, a service charge is not a qualified tip unless the customer can disregard or modify it. An automatic 18% large-party charge the customer cannot change is not a qualified tip, even if it is paid out to servers. A voluntary tip on top of it can be.
Do credit card tips, tip pools, and app tips count?
Yes, if the other rules are met. Qualified tips can be paid in cash, by check, credit or debit card, gift card, or a payment app denominated in cash, and employees can count tips received through a mandatory or voluntary tip-sharing arrangement such as a tip pool.
What is the income limit for the tips deduction?
The deduction drops by $100 for each whole $1,000 of MAGI over $150,000 ($300,000 joint); Schedule 1-A ignores a partial $1,000. Someone claiming the full $25,000 loses all of it at $400,000 of MAGI, or $550,000 on a joint return.
I am self-employed. Can I deduct my tips?
Yes, if your occupation is on the IRS list and the other rules are met, but the deduction cannot exceed your net income from that trade or business. Keep records such as daily tip logs; for 2025 the IRS accepted a log showing tips that a Form 1099-K did not separately identify.
What about tips in a specified service trade or business (SSTB)?
The statute excludes tips received in an SSTB, but the April 2026 final regulations left that question for future guidance. Under Notice 2025-69, until January 1 of the year after final SSTB regulations are issued, the IRS treats a worker in a listed occupation as not being in an SSTB.