The No Tax on Tips deduction is a new federal tax break available for tax years 2025 through 2028.
If you receive qualified tips from work, you may be able to deduct those tips from your taxable income—even if you don’t itemize.
This deduction was created under the One Big Beautiful Bill and is designed to reduce taxes for workers in tip-based jobs.
Who can claim the No Tax on Tips deduction?
You may qualify if:
You received qualified tips during the tax year
Your job is in an occupation the IRS lists as customarily and regularly receiving tips (based on work performed on or before December 31, 2024)
Your tips are:
Reported on Form W-2, Form 1099, or another IRS statement, or
Reported directly by you on Form 4137
You include your Social Security number on your return
If you’re married, you file jointly
This deduction is available whether you take the standard deduction or itemize.
What counts as qualified tips?
Qualified tips include:
Voluntary cash tips
Charged tips (like tips added to a credit card payment)
Tips received through tip sharing
Tips must come directly from customers or through a tip pool and be connected to qualifying work.
If you want to see real examples of how the No Tax on Tips deduction applies, the IRS has published detailed guidance with scenarios for tipped and overtime workers.
Who doesn’t qualify?
You generally can’t claim the deduction if:
You’re self-employed in a Specified Service Trade or Business (SSTB) under section 199A
You’re an employee whose employer operates as an SSTB
Your income is above the phaseout limits (see below)
How much can I deduct?
Annual deduction limits
Up to $25,000 per year
For self-employed individuals, the deduction can’t exceed your net income from the business where the tips were earned
Income limits
The deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds:
$150,000 (single filers)
$300,000 (married filing jointly)
How do reporting rules work?
Employers and payors are required to report:
The amount of qualified tips paid during the year
The worker’s occupation
You may see this information on:
Form W-2 (including Box 7)
Form 1099
Other IRS information statements
If you received tips that weren’t reported by your employer, you may still qualify—but you’ll need to report them on Form 4137 and keep good records.
For tax year 2025, the IRS provided transition relief, giving taxpayers and employers extra flexibility as the new reporting rules were implemented.
Key takeaway
The No Tax on Tips deduction lets eligible workers deduct up to $25,000 in qualified tips for tax years 2025–2028.
Eligibility depends on your occupation, how tips are reported, your income level, and whether your work qualifies under IRS rules.
Because this is a brand-new deduction, keeping accurate tip records and reviewing IRS guidance will be especially important when you file.
This content is provided for informational purposes only and should not be construed as tax, legal, financial, accounting, or other advice. Rules and regulations vary by location and are subject to change, so please consult with an expert if you need advice specific to you.
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