Understanding the "No Tax on Tips" Deduction

June 26, 2026
Smiling person in a blue apron standing in a bright café kitchen near large windows

If you're one of the estimated six million taxpayers working in a job where you receive tips, you may be interested in learning more about the new "no tax on tips" deduction.1


In 2025, the One Big Beautiful Bill Act established a temporary federal tax deduction to help reduce the tax liability of certain tipped workers for tax years 2025-2028. Employees and self-employed taxpayers may deduct up to $25,000 annually in qualified tips as long as they work in an occupation the IRS views as "customarily and regularly" receiving tips. Qualified tips include voluntary cash tips and amounts paid by credit or debit card, including amounts received through tip-sharing arrangements. Automatic gratuities and mandatory service charges do not qualify.


The deduction is available whether the taxpayer claims the standard deduction or itemizes deductions. Self-employed individuals cannot claim a deduction exceeding the net income from the business in which the tips were earned.



Taxpayers who have a valid Social Security number and work in an eligible occupation, such as bartenders, waitstaff, casino dealers, hairdressers, valet attendants, taxi/rideshare drivers, baggage porters, and food delivery personnel, qualify for the deduction. Married couples must file a joint return, while couples filing separately are not eligible. Employers must report all their employees' tip income to the IRS or Social Security Administration. A complete list of the 68 occupations across eight industries that qualify for the deduction is available at irs.gov.

Text about tipped workers deducting up to $25,000 in tips from federal income taxes, with a cartoon waitress.

The deduction begins to phase out for single filers with modified adjusted gross income (MAGI) over $150,000 or over $300,000 for married couples filing jointly. The deduction is reduced by $100 for every $1,000 above these thresholds.


In 2025, the IRS permitted taxpayers to use Form W-2 (Box 7), employer tip reports, Form 4137, and personal tip logs to report qualified tips. In 2026, taxpayers claiming the deduction will use Schedule 1-A, while employers will be required to separately report qualified tips on Forms W-2 and certain 1099s.


Each state will decide whether to adopt, modify, or reject the provision, so taxpayers should check with their state tax agency to determine the tax treatment of tip income.




(1) IRS.gov, November 21, 2025


All Securities Through Money Concepts Capital Corp., Member FINRA / SIPC

11440 North Jog Road, Palm Beach Gardens, FL 33418 Phone: 561.472.2000

Copyright 2010 Money Concepts International Inc.

Investments are not FDIC or NCUA Insured

May Lose Value - No Bank or Credit Union Guarantee

This communication is strictly intended for individuals residing in the state(s) of MI. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2020.

White ghost beside a blue smartphone with a green sound icon and “TAP HERE” text
By TFC Team • September 21, 2026
Learn how ghost tapping scams work, the risks tied to tap-to-pay cards and mobile wallets, and simple steps to help protect your money and personal information.
How an HSA Can Support Your Health Costs and Retirement Savings
By TFC Team • September 21, 2026
Learn how a Health Savings Account can offer tax advantages, help cover qualified medical expenses, and build funds for health-care costs later in life.
Two businesspeople in suits walking outdoors; one carries a briefcase and the other checks a phone.
By TFC • September 21, 2026
Learn how workplace retirement plans work, including target-date funds, stock and bond funds, company stock, diversification, and portfolio rebalancing.
Couple walking hand in hand along a beach under a clear blue sky
By TFC Team • September 21, 2026
Learn how claiming age affects Social Security retirement benefits, from reduced payments at 62 to delayed retirement credits available through age 70.
Show More