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Guide · Updated October 21, 2026

No Tax on Tips, explained

What the deduction is, who gets it, which tips count and how it's worked out. Every fact below is from the IRS or the statute, with links at the bottom.

General information, not tax advice. TipLedger isn't affiliated with the IRS or Treasury. Rules have details this page can't cover, so check with a tax professional about your own return.

The short version

$25,000
maximum deduction per year
2025–2028
tax years it applies to
8
categories of tipped occupations on Treasury's list
  • It's a federal income tax deduction on qualified tips. It lowers your taxable income.
  • You can take it whether you itemize or use the standard deduction.
  • It's for employees and self-employed people who get tips in an occupation on Treasury's list.
  • It doesn't touch Social Security or Medicare tax. Your tips are generally still subject to both.

Want a number for your own situation? Use the deduction calculator.

Who qualifies

  • Your occupation has to be on the list. Treasury's final regulations (April 2026) group tipped occupations into eight categories: Beverage and Food Service, Entertainment and Events, Hospitality and Guest Services, Home Services, Personal Services, Personal Appearance and Wellness, Recreation and Instruction, and Transportation and Delivery. The full list is at IRS.gov/TippedOccupations.
  • Employees and self-employed people can both qualify. That includes gig workers, if their occupation is on the list.
  • Married couples must file jointly. Married filing separately isn't eligible.
  • You need a valid Social Security number.
  • Specified service trades or businesses have special rules. Ask a tax professional if that might describe your employer or your own business.

Which tips count

The IRS calls them qualified tips. To count, a tip has to be:

  • Voluntary. The customer chooses to give it and it isn't negotiated.
  • Paid in cash or an equivalent, such as a check, a credit or debit card, or a payment app.
  • From a customer, or shared with you through a tip pool or tip-sharing arrangement.

Mandatory service charges are the common trap. An automatic 18% charge on a large party that the customer can't change isn't a qualified tip, even if the receipt calls it a gratuity. If the customer can disregard or change the amount, it can count.

The income phase-out

The deduction shrinks as your modified adjusted gross income (MAGI) climbs past $150,000, or $300,000 if you file jointly. Schedule 1-A takes the amount over the threshold, divides it by $1,000, rounds down to a whole number and subtracts $100 for each step.

Example. You're single, you got $20,000 in qualified tips and your MAGI is $152,500. That's $2,500 over the threshold, which is 2.5 steps, rounded down to 2. The reduction is 2 × $100 = $200, so your deduction is $19,800.

The deduction reaches zero at $400,000 of MAGI for single and head of household filers, and at $550,000 for joint filers.

Where it goes on your return

You claim it on Schedule 1-A (Form 1040), Part II. The form counts qualified tips that show up on your Form W-2, on a Form 1099 (NEC, MISC or K), or that you reported yourself on Form 4137. Tips that aren't on any of those can't be claimed, which is why reporting your tips on time and keeping your own record both matter. Here's what to keep.

If you're self-employed, the deduction can't be more than the net income from the business where you earned the tips.

Keep the record the deduction depends on.TipLedger logs each shift in about 30 seconds and tracks your running total against the $25,000 cap. Free to download.

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Questions people ask

How much can I deduct?

Up to $25,000 of qualified tips per year, for tax years 2025 through 2028. It shrinks when MAGI is over $150,000, or $300,000 for joint filers.

Are mandatory service charges qualified tips?

Not unless the customer can disregard or change them. An automatic 18% large-party charge with no opt-out isn't a qualified tip.

Do I need to itemize?

No. The deduction is available whether you itemize or take the standard deduction.

Can gig workers and other self-employed people claim it?

Yes, if their occupation is on Treasury's list and the other requirements are met. For self-employed people the deduction is limited to the net income from the business where the tips were earned.

Sources

Last checked against these sources on October 21, 2026.