No Tax on Tips: Calculator and Guide
Employees and self-employed workers in occupations the IRS lists as customarily and regularly receiving tips can deduct up to $25,000 of qualified tips per year. It is a deduction from taxable income — tips remain subject to payroll tax and still count as income for other purposes.
Sources: IRS — Working Families Tax Cuts: individuals and workers · IRS — Schedule 1-A, Additional Deductions
Estimate your tips deduction
Deduction before phase-outCap: $25,000 per year$12,000
Your tips deduction$12,000
Applies to occupations the IRS lists as customarily and regularly receiving tips. A deduction reduces taxable income — your saving equals the deduction × your marginal rate. Self-employed workers in specified service trades and employees of SSTB employers are not eligible.
Which tips qualify
- Voluntary cash or charged tips from customers, including shared tips.
- Must be reported on Form W-2, Form 1099, another furnished statement, or Form 4137.
- Only occupations on the IRS list of jobs that customarily received tips on or before December 31, 2024.
- Mandatory service charges and auto-gratuities are not qualified tips.
Who is not eligible
- Self-employed workers in a Specified Service Trade or Business (SSTB) under §199A.
- Employees whose employer operates in an SSTB.
- Anyone without a valid SSN on the return.
- Married individuals filing separately — joint filing is required if married.
Limits and how to claim
- Cap: $25,000 per return per year.
- Phase-out begins above $150,000 MAGI ($300,000 joint).
- For self-employed workers, the deduction cannot exceed net income from the business where the tips were earned.
- Claim on Schedule 1-A (Part II), attached to your Form 1040 — available whether you itemize or not.
- Employers report cash tips and the worker's occupation on W-2 starting tax year 2026 (box 12 code TP); 2025 has transition relief.