For tax years 2025 through 2028, workers who earn tips can deduct up to $25,000 of qualified tips from their federal taxable income. But not every job and not every tip qualifies. The deduction covers tips earned in occupations that customarily received tips before 2025, and only tips that customers chose to give.
This guide explains which jobs qualify, which tips count and how the limits work, with examples. For the other new deductions, see Schedule 1-A explained.
Which jobs qualify
Tips qualify only if you earn them in an occupation that customarily and regularly received tips on or before December 31, 2024. The Treasury Department published a list of these occupations in eight categories:
| Category | Examples |
|---|---|
| Beverage and food service | Bartenders, wait staff, restaurant hosts, bussers, cooks, fast food and counter workers |
| Entertainment and events | Casino dealers, musicians and singers, DJs, dancers, ushers, coatroom attendants |
| Hospitality and guest services | Bellhops and baggage porters, concierges, hotel desk clerks, housekeepers |
| Home services | Home repair workers, landscapers, home cleaners, and plumbers or electricians working in homes |
| Personal services | Event planners, event photographers, pet sitters, tutors, nannies and babysitters |
| Personal appearance and wellness | Barbers and hairstylists, manicurists, massage therapists, makeup artists, fitness trainers, tattoo artists |
| Recreation and instruction | Golf caddies, tour guides, sports and recreation instructors |
| Transportation and delivery | Rideshare and taxi drivers, valet attendants, delivery drivers, shuttle drivers, movers |
The table shows examples only. Check the IRS or Treasury list for the full set of occupations and their codes. If your job isn’t on the list, your tips don’t qualify, even if customers sometimes tip you.
Which tips count
To qualify, a tip must be:
- Voluntary. The customer decides whether to tip and how much. The tip can’t be required or negotiated.
- Paid in cash or a cash equivalent, meaning cash, a check, a credit or debit card, or a payment app.
- Reported. Employees report tips to their employer, and reported tips appear on Form W-2. Tips you didn’t report to your employer must be reported on Form 4137 with your tax return. Self-employed workers report tips as business income.
What counts:
- tips added on a card slip or payment screen;
- tips you receive through a tip pool or tip-sharing arrangement;
- cash tips you report.
What doesn’t count:
- automatic service charges, such as a mandatory 18% gratuity for large parties, because the customer didn’t choose to pay them;
- non-cash tips, such as tickets, meals or goods;
- unreported tips, until you report them.
The limits
- Cap: $25,000 per tax return. A married couple filing jointly shares one $25,000 limit, even if both spouses earn tips.
- Phase-out: the deduction shrinks by $100 for every $1,000 of modified AGI above $150,000, or above $300,000 for joint filers.
- Filing status: married couples must file jointly to claim it.
- Social Security number: you need a valid SSN.
- Self-employed: the deduction can’t exceed the net income from the business where you earned the tips.
- Specified service businesses: tips earned in certain professional service fields, such as health, law, accounting and the performing arts, are excluded. Check the rules if your work, or your employer’s business, is in one of these fields.
- Years: tax years 2025 through 2028, unless Congress extends the deduction.
Examples
A server with $18,000 of tips. Their modified AGI is $62,000, well under $150,000, so the full $18,000 is deductible. If their top tax bracket is 12%, the deduction saves roughly $2,160 in federal income tax.
A couple who both earn tips. A bartender with $20,000 of tips and a hairstylist with $12,000 have $32,000 in total, but their joint limit is $25,000. With a modified AGI of $140,000, below $300,000, they deduct the full $25,000.
A single filer above the threshold. They have $10,000 of tips and a modified AGI of $170,000, which is $20,000 over $150,000. The deduction drops by $2,000, to $8,000.
What the deduction doesn’t do
- You still owe Social Security and Medicare tax on all your tips.
- Tips still count in your adjusted gross income, which affects things like ACA subsidies and some credits.
- Your state may still tax tips. Check your state’s rules.
- You can claim it whether you itemize or take the standard deduction. It goes on Schedule 1-A.
Keep good records
- Report your tips to your employer every month. If you receive $20 or more in tips in a month, report them by the 10th of the following month.
- Keep a daily tip log, including tips you share with or receive from coworkers.
- Keep your W-2s and pay stubs, and if you’re self-employed, your payment app and card processor statements.
Estimate your deduction with the no tax on tips calculator, or combine it with overtime and the other deductions in the Schedule 1-A calculator. If you also work overtime, read how to calculate qualified overtime.
Sources:
- IRS, One, Big, Beautiful Bill provisions
- IRS, Tip recordkeeping and reporting
- Public Law 119-21 (H.R. 1)