2026 OnE Big Beautiful Bill Updates
Your tips. Your Money
A brand-new deduction means tipped workers can keep up to $25,000 more in their pockets. Don’t leave money on the table—let us help you claim every dollar you deserve.
"No Tax on Tips"
Tax Deduction Guide for Tipped Workers
Overview of the Deduction
Employees and self-employed individuals may deduct qualified tips they received in occupations the IRS identified as "customarily and regularly receiving tips" on or before December 31, 2024.
Tips must be reported on Form W-2, Form 1099, another statement furnished to the individual, or on Form 4137 if the individual directly reports the tips.
For self-employed individuals: Deduction cannot exceed net income (before this deduction) from the trade or business where tips were earned.
What Counts as Qualified Tips
✓ Qualified Tips
- Voluntary cash tips from customers
- Charged tips (credit card tips)
- Shared tips from tip pools
- Tips in IRS-listed occupations
✗ Not Qualified
- Mandatory service charges
- Auto-gratuity charges
- Tips as an SSTB employee
- Tips from self-employment in an SSTB
Who Qualifies
Employees
Workers in tip-receiving occupations identified by the IRS. Tips must be properly reported on W-2, 1099, or Form 4137.
Self-Employed
Can deduct up to net income from the trade or business where tips were earned (before this deduction).
Both Filers
Available to both itemizing and non-itemizing taxpayers. Must have a valid Social Security Number.
Who Doesn't Qualify
- Self-employed individuals in a Specified Service Trade or Business (SSTB) under Section 199A
- Employees of an employer in an SSTB
Income Phase-Out Limits
Deduction phases out for taxpayers with modified adjusted gross income over:
How to Claim the Deduction
- Include your Social Security Number on the return
- File jointly if you're married
- Ensure tips are properly reported on W-2, 1099, or Form 4137
Reporting Requirements
Employers and other payors must report certain cash tips and the occupation of the tip recipient on IRS (or SSA) information returns.
Note: Treasury and the IRS will provide penalty relief for tax year 2025.
No Tax on Tips
Get answers to the most common questions about the new tip deduction
How does the No Tax on Tips deduction work?
If you earn tips at work, you may be able to deduct up to $25,000 of qualified tips on your federal income tax return. The deduction is available for tax years 2025 through 2028. It applies to tips received in occupations the IRS identified as customarily receiving tips. The deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for married couples filing jointly).
Will tips be completely tax-free in 2025?
Not entirely. You'll still owe Social Security and Medicare taxes on tips, and you may owe state income tax as well. The new law applies to federal income tax only, allowing you to deduct up to $25,000 in tips when calculating your taxable income for your federal tax return.
What jobs qualify for the No Tax on Tips deduction?
The IRS has published a list of occupations that customarily receive tips, including: Beverage and Food Service workers, Entertainment and Events staff, Hospitality and Guest Services employees, Home Services providers, Personal Services workers, Personal Appearance and Wellness professionals, Recreation and Instruction staff, and Transportation and Delivery drivers.
What counts as qualified tips for this deduction?
Qualified tips include voluntary cash tips from customers, charged tips on credit cards, and tips from tip-sharing arrangements. Mandatory service charges and auto-gratuity charges do not qualify. Tips must be reported on Form W-2, Form 1099, or Form 4137.
Can the IRS track cash tips?
Yes, employers are required to report their workers' tips to the IRS. It doesn't matter what form these tips take—cash, gift cards, or something else. Employers must also pay and withhold taxes on this income. You are required to report all tip income to your employer or directly to the IRS.
How does No Tax on Tips affect employers?
While the provision reduces the tax burden on employees, it does not change the paperwork employers must file. Business owners must still record and report tips earned on an employee's W-2 or a contractor's 1099. Employers must also report the occupation of each tip recipient on information returns.
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