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 reduces your federal taxable income, but tips are still generally subject to Social Security and Medicare taxes.
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
Your tips are:
Reported on Form W-2, Form 1099, or another IRS statement, or
Reported directly by you on Form 4137, if applicable
You include a Social Security number valid for employment 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 be voluntarily given by customers, either directly or through a tip-sharing arrangement, and connected to qualifying work.
Mandatory service charges do not qualify.
If you want to see examples of how the deduction applies, the IRS has published detailed guidance with scenarios.
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 occupation isn’t on the IRS list of qualifying tipped occupations
Your income is high enough that the deduction is fully phased out
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
For 2026, the deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds:
$150,000 for single, head of household, or qualifying surviving spouse filers
$300,000 for married filing jointly
The deduction decreases by $100 for each full $1,000 that your MAGI exceeds the applicable threshold.
How do reporting rules work?
Starting in tax year 2026, employers and other payors are generally required to report qualified tips and the worker’s tipped occupation separately.
You can find this information on:
Form W-2: Box 12, code TP, for cash tips; Box 14b for the tipped occupation code
Form 1099-NEC: Box 1b for cash tips; Box 1c for the occupation code
Form 1099-MISC: Box 13a for cash tips; Box 13b for the occupation code
Form 1099-K: Box 1c for cash tips; Box 1d for the occupation code
If you received tips that weren’t reported by your employer, you may still qualify if you report them using Form 4137, when applicable, and keep records.
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, and whether your work qualifies under IRS rules.
Keep accurate tip records and review your tax forms before claiming the deduction.
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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