New deduction · tax years 2025–2028

No Tax on Tips: Calculator and Guide

Employees and self-employed workers in occupations the IRS lists as customarily and regularly receiving tips can deduct up to $25,000 of qualified tips per year. It is a deduction from taxable income — tips remain subject to payroll tax and still count as income for other purposes.

Sources: IRS — Working Families Tax Cuts: individuals and workers · IRS — Schedule 1-A, Additional Deductions

Estimate your tips deduction

Deduction before phase-outCap: $25,000 per year$12,000
Your tips deduction$12,000

Applies to occupations the IRS lists as customarily and regularly receiving tips. A deduction reduces taxable income — your saving equals the deduction × your marginal rate. Self-employed workers in specified service trades and employees of SSTB employers are not eligible.

Which tips qualify

  • Voluntary cash or charged tips from customers, including shared tips.
  • Must be reported on Form W-2, Form 1099, another furnished statement, or Form 4137.
  • Only occupations on the IRS list of jobs that customarily received tips on or before December 31, 2024.
  • Mandatory service charges and auto-gratuities are not qualified tips.

Who is not eligible

  • Self-employed workers in a Specified Service Trade or Business (SSTB) under §199A.
  • Employees whose employer operates in an SSTB.
  • Anyone without a valid SSN on the return.
  • Married individuals filing separately — joint filing is required if married.

Limits and how to claim

  • Cap: $25,000 per return per year.
  • Phase-out begins above $150,000 MAGI ($300,000 joint).
  • For self-employed workers, the deduction cannot exceed net income from the business where the tips were earned.
  • Claim on Schedule 1-A (Part II), attached to your Form 1040 — available whether you itemize or not.
  • Employers report cash tips and the worker's occupation on W-2 starting tax year 2026 (box 12 code TP); 2025 has transition relief.