No tax on tips: what the deduction really does
Tips are still taxable, but a deduction of up to $25,000 can lower the tax for listed tipped jobs in 2025 to 2028. See who qualifies and how the limit works.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on November 4, 2026.
Tips are still taxable income, but for tax years 2025 through 2028 you may deduct qualified tips, up to $25,000, if you work in a job on the IRS list of tipped occupations. You claim it on Schedule 1-A. You need a valid Social Security number, and married people must file jointly.
- Qualified tips are voluntary cash or charged tips from customers, including shared tips.
- The most you can deduct is $25,000 for the year.
- The deduction shrinks when modified adjusted gross income is over $150,000 ($300,000 on a joint return).
- The job must be on the IRS list of occupations that customarily received tips on or before December 31, 2024.
- You can take it whether you itemize or use the standard deduction.
What the deduction does and does not do
The deduction lowers your taxable income. It does not make tips tax-free in every way, because the tips are still part of your pay. Social Security and Medicare tax still apply, and the deduction is not a refund by itself. How much tax it saves depends on your bracket.
Who can claim it
Check your job
Only tips received in an occupation that customarily and regularly received tips on or before December 31, 2024 count. The IRS list includes bartenders, wait staff, baristas, casino dealers, car wash attendants and delivery drivers, including app-based delivery.
Check the kind of tip
The tip must be voluntary and paid in cash or by card by a customer. Shared tips count. A mandatory service charge is not a tip you chose to leave.
Check your paperwork
You need a Social Security number that is valid for work. If you are married, you and your spouse file a joint return.
Check your income
Reduction begins when modified adjusted gross income is over $150,000, or $300,000 for joint filers.
The numbers
| Item | Amount (tax years 2025 to 2028) |
|---|---|
| Maximum deduction | $25,000 |
| Reduction starts (single) | Modified AGI over $150,000 |
| Reduction starts (joint) | Modified AGI over $300,000 |
| Self-employed limit | Cannot exceed net income, before this deduction, from the business where the tips were earned |
A short example
This example is invented. Dev is single and works as a server. In 2025 he received $14,000 in qualified card and cash tips, and his modified adjusted gross income was well under $150,000. He can deduct the full $14,000 on Schedule 1-A. If his top federal rate is 12 percent, that lowers his federal income tax by about $1,680. He still pays payroll tax on the tips.
If you are self-employed
Self-employed people can claim it too, but only up to the net income from the business that earned the tips. A loss in that business means no deduction for those tips. Keep daily tip records.
Common questions
Are tips still taxable?
Yes. Tips are income. The new deduction can lower your taxable income by the qualified amount, up to $25,000.
Do I need to itemize?
No. The deduction is available whether you itemize or take the standard deduction.
Can I claim it if I am married filing separately?
No. If you are married, you must file a joint return to claim it, and each spouse who received qualified tips needs a valid Social Security number.
How do I find out if my job is on the list?
The IRS publishes the list of occupations that customarily received tips on or before December 31, 2024. Check your job title and duties against it.
Does Illinois give the same deduction?
This page covers federal tax only. Check the Illinois Department of Revenue for state rules.
Official sources
- IRS: What the No Tax on Tips deduction means for you
- IRS: Occupations that customarily and regularly received tips on or before Dec. 31, 2024
- IRS: Schedule 1-A (Form 1040), 2025
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