No tax on tips: the 2026 tips deduction explained
From 2025 through 2028, workers in tipped jobs can deduct up to $25,000 of tips a year on the new Schedule 1-A. Here is who qualifies, which tips count and how to find the amount.
General information, not tax advice. Based on the IRS instructions for Schedule 1-A and 2026 IRS guidance. Your situation may differ; check the official sources below or ask a tax professional.
The deduction at a glance
| Maximum deduction | $25,000 per return |
| Phase-out starts (MAGI) | $150,000; $300,000 joint |
| Fully phased out | $400,000; $550,000 joint |
| Years | 2025 to 2028 |
| Filing status | Any, but married couples must file jointly |
The deduction falls by $100 for each full $1,000 of modified AGI over the threshold. For most people, modified AGI is simply the adjusted gross income on Form 1040. With $190,000 of income and $20,000 of tips, a single filer loses $4,000 and deducts $16,000.
Who qualifies
- A tipped occupation. The tips must be earned in an occupation that customarily and regularly received tips on or before December 31, 2024. Treasury publishes the list at IRS.gov/TippedOccupations. It covers bartenders, wait staff, cooks, dishwashers and hosts; dealers, musicians and digital content creators; bellhops and housekeepers; home repair, cleaning and landscaping workers; hairstylists, barbers, massage therapists and trainers; pet sitters, tutors and nannies; caddies and tour guides; and taxi and rideshare drivers, delivery people, valets and movers.
- A valid Social Security number that is valid for employment, for the person who received the tips.
- A joint return if you are married.
- Employees and the self-employed both qualify. Tips received working for a business in a "specified service" field (such as health, law or consulting) do not count, but for now the IRS treats anyone working in a listed occupation as outside that rule.
Which tips count
A qualified tip is paid voluntarily, is not negotiated, and the customer decides the amount. It can be paid in cash, by check or card, through a payment app, or shared with you through a tip pool. It does not include:
- Automatic gratuities and service charges the customer cannot change.
- Tips paid in something other than cash, such as tickets or meals.
- Tips earned in an occupation that is not on the list, even from the same employer.
- Tips from illegal work.
Finding your tip amount
Employees. For 2026, the W-2 has a new box 12 code TP showing the cash tips you reported to your employer, with your Treasury tipped-occupation code in box 14b. Tips you did not report to your employer go on Form 4137 and can count too.
Self-employed and gig workers. Forms 1099-NEC, 1099-MISC and 1099-K are being updated to show tips separately. Keep your own records too: app earnings statements, point-of-sale reports or a daily tip log. Only tips included in the totals on a 1099 count, and only up to the business's net profit.
For 2025 returns, before the forms changed, the IRS lets employees use W-2 box 7, their monthly tip reports to the employer, or a separate employer statement.
Example
A single server has $52,000 of income, including $18,000 of reported tips. The whole $18,000 is deductible, so taxable income drops from $35,900 to $17,900 after the $16,100 standard deduction. That saves about $2,160 of federal income tax. Social Security and Medicare tax on the tips is unchanged.
Estimate it: the Schedule 1-A calculator applies the limits and phase-outs for all four new deductions and shows the tax saved. For your whole return, try the tax refund calculator.
Frequently asked questions
Are tips now tax-free?
Not completely. Qualified tips up to $25,000 are deductible from income for federal income tax, for 2025 through 2028. They are still reported as income and still subject to Social Security and Medicare tax.
Do I have to itemize to claim it?
No. You claim it on Schedule 1-A whether you take the standard deduction or itemize.
Is the $25,000 limit per person?
No. It is per return. A married couple filing jointly who both earn tips share one $25,000 limit.
Can married people filing separately claim it?
No. If you are married, you must file a joint return to take the deduction.
Do automatic gratuities count?
No. A service charge or automatic gratuity added to the bill is not a qualified tip unless the customer is expressly given the option to change or remove it. A tip the customer picks on a card reader, with a "no tip" option, does count.
Can self-employed workers and gig drivers claim it?
Yes, if the occupation is on the IRS list. Rideshare drivers, delivery people and other non-employees can count tips that appear in the totals on their 1099-K, 1099-NEC or 1099-MISC, but only up to the net income of that business. Cash tips that never appear on a 1099 do not count.
Does my state follow it?
Not automatically. The deduction comes after adjusted gross income, and many states start from AGI, so whether your state allows it depends on its own law. Check with your state tax agency.
Official sources
- IRS Instructions for Form 1040 (2025), Instructions for Schedule 1-A
- IRS Schedule 1-A (Form 1040), Additional Deductions
- IRS: Occupations that customarily and regularly received tips
- IRS Instructions for Forms W-2 and W-3 (2026): box 12 codes TP and TT, box 14b
- IRS Notice 2025-69 (tips and overtime: transition relief and guidance)
The other new deductions
- No tax on overtime — Only the extra half of time-and-a-half counts; who is covered and how to find the amount.
- Car loan interest deduction — New, U.S.-assembled vehicles bought with a loan after 2024: the conditions and the limit.
- Senior deduction — An extra deduction for each person 65 or older, on top of the standard deduction.
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