No Tax on Tips: Who Qualifies, Which Jobs, and the $25,000 Cap

No tax on tips is a federal income tax deduction of up to $25,000 a year for voluntary tips earned in a job on the IRS list of tipped occupations. It covers tax years 2025 through 2028. You still report every dollar, and payroll taxes still apply.

The law behind it is the One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, which added section 224 to the tax code. The IRS estimates about 6 million workers report tipped wages. Servers, bartenders, stylists, rideshare drivers, delivery workers and many home service trades can qualify.

This guide covers the occupation list, which payments count as qualified tips, the income phase-out, and how to claim it on your 2025 and 2026 returns. Every rule below was checked against IRS pages, the statute and the final Treasury regulations on October 26, 2026.

Key Takeaways

• You can deduct up to $25,000 of qualified tips per return, for 2025 through 2028. The cap is the same for single and joint filers.
• Only tips from jobs on the Treasury list count. The final list, published April 13, 2026, has 71 occupation codes in eight groups, from bartenders (101) to gas pump attendants (810).
• Automatic service charges, required gratuities and tip screens with no zero option are not qualified tips. Extra amounts a customer chooses on top can be.
• The deduction shrinks by $100 for every $1,000 of income above $150,000 ($300,000 joint). It reaches zero at $400,000 single or $550,000 joint for someone at the full $25,000.
• Payroll taxes do not change. Starting with 2026 pay, your W-2 shows tips in box 12 with code TP and your occupation code in box 14b.

What does no tax on tips actually do?

No tax on tips lets you subtract qualified tips from your income when you file your federal return, up to $25,000. It is a deduction, not an exclusion. Tips are still taxed on each paycheck and still appear in your wages. The savings show up as a smaller tax bill or a bigger refund at filing time.

The IRS says the deduction works whether you itemize or take the standard deduction. So a single worker who takes the $16,100 standard deduction for 2026 can claim both. You do not need to own a home or track receipts to use it.

It helps to be clear on what the name overstates. Your tips are not tax free in every sense. The deduction does not cut Social Security tax, Medicare tax, or self-employment tax, and it does not apply to state income tax unless your state copies it.

Which tax years does it cover?

Four years: 2025, 2026, 2027 and 2028. Section 224(h) says no deduction is allowed for any tax year beginning after December 31, 2028. Unless Congress extends it, 2028 returns (filed in 2029) are the last ones where you can claim it.

Who qualifies for the tip deduction?

You qualify if you received voluntary cash or card tips in an occupation on the Treasury list, the tips appear on a W-2, a 1099 or Form 4137, and you have a Social Security number valid for work. Married couples must file jointly. Employees and self-employed workers can both claim it.

Here is the full checklist the statute and the IRS lay out:

• Listed occupation. Your job must be one that “customarily and regularly received tips on or before December 31, 2024,” as shown on the IRS list of occupations that received tips.
• Qualified tips only. The customer pays voluntarily, decides the amount, and faces no consequence for paying nothing.
• Reported tips. The amount must be on Form W-2, Form 1099-NEC, 1099-MISC or 1099-K, or reported by you on Form 4137.
• Valid SSN. An ITIN is not enough. For a married couple, only the spouse who earned the tips needs one, unless both are claiming tips.
• Joint return if married. Married filing separately cannot claim it.
• Income under the phase-out range. Above $150,000 of modified adjusted gross income ($300,000 joint), the amount shrinks.

What is the specified service business rule?

The statute also bars tips earned in a “specified service trade or business,” a term borrowed from section 199A of the tax code. For employees, the test looks at the employer’s business, not the worker’s job.

The IRS has set that rule aside for now. Until January 1 of the year after Treasury issues final regulations on what counts as such a business, the IRS treats anyone tipped in a listed occupation as outside it. As of October 26, 2026, workers on the list do not need to worry about this test.

What jobs qualify for no tax on tips?

Treasury’s final list has 71 occupations, each with a three-digit Treasury Tipped Occupation Code (TTOC). They fall in eight groups, from food and beverage service to transportation and delivery. If your job is not on the list, tips from it do not qualify.

The final regulations (Treasury Decision 10044) were published in the Federal Register on April 13, 2026 and took effect June 12, 2026. Compared with the proposed list from 2025, they added visual artists, floral designers and gas pump attendants.

Code range	Group	Examples on the list
101 to 110	Beverage and food service	Bartenders, wait staff, bussers, cooks, baristas, dishwashers, hosts, bakers
201 to 211	Entertainment and events	Casino dealers and cage cashiers, dancers, musicians, DJs, streamers and podcasters, ushers, coat check
301 to 304	Hospitality and guest services	Bellhops and doormen, concierges, hotel desk clerks, hotel housekeepers
401 to 409	Home services	Handymen, house painters, landscapers, electricians, plumbers, HVAC techs, house cleaners, locksmiths, tow truck drivers
501 to 510	Personal services	Personal care aides, wedding planners, event photographers, officiants, pet groomers and walkers, tutors, nannies, florists
601 to 611	Personal appearance and wellness	Estheticians, massage therapists, barbers and stylists, nail techs, lash techs, makeup artists, personal trainers, tattoo artists, tailors, shoe shiners
701 to 706	Recreation and instruction	Golf caddies, music and art teachers, tour pilots, tour guides, ski and surf instructors
801 to 810	Transportation and delivery	Valets, taxi and rideshare drivers, shuttle drivers, app delivery drivers, car wash workers, charter bus drivers, movers, gas pump attendants

Source: IRS list of occupations that received tips (TTOC table), checked October 26, 2026.

Jobs people often ask about

• Kitchen staff. Yes. Chefs and cooks are code 105, food prep workers 106 and dishwashers 108, so tip-pool shares they receive can count.
• Baristas and counter workers. Yes, code 107 (fast food and counter workers).
• Rideshare and delivery drivers. Yes. App-based rideshare is in code 802 and app-based delivery is in code 804.
• Streamers and creators. Yes, code 209 covers streamers, video creators, influencers and podcasters.
• Trades in private homes. Yes. Codes 401 to 409 cover painters, roofers, plumbers, electricians, HVAC and appliance repair, landscapers and locksmiths.
• Shuttle and bus drivers. Partly. Airport and hotel shuttles (803) and charter buses (806) count. City bus and school bus drivers are excluded.

Do managers and apprentices count?

Assistants and apprentices are included in an occupation if they do the same work it describes. Managers and supervisors are different: tip pool money they receive does not qualify. Tips a manager earns directly while doing a listed job, such as tending bar on a busy night, can still count.

Which tips count, and which do not?

A tip counts when the customer chooses to give it and picks the amount. Cash, card, check, gift card and payment app tips all qualify, as do shares from a tip pool. Mandatory service charges, contract gratuities, tip screens that force a minimum, crypto and non-cash gifts like event tickets do not.

The final regulations include detailed examples, and they answer most of the gray-area questions tipped workers run into. The IRS tip recordkeeping page repeats the main points in plain language.

Situation	Qualified tip?
Restaurant adds an automatic 18% charge for parties of six, with no option to change it	No. It is a service charge, paid to you as wages
Same bill, and the customer writes 2% more on an “additional tip” line	The 2% is a qualified tip
Bill shows a “recommended” 18% the customer can lower to zero; they pay 15%	Yes, the 15% they chose
Card screen offers 15%, 18%, 20%, other and no tip; customer taps 18%	Yes
Card screen offers only 15%, 18% and 20%; customer taps 18%	Only 3% counts. The forced 15% does not
Painter’s contract adds a 15% service charge, and the homeowner hands over another 10% in cash	Only the extra 10% counts
Landscaper relabels $500 of the agreed price as a “tip”	No. Only the customer can set a tip
Viewer pays $5 to unlock a creator’s video, then sends $2 more as thanks	Only the $2 counts
Concert tickets or a meal given as a tip	No. Non-cash tips are income but not qualified tips
Tip paid in cryptocurrency	No. Digital assets are excluded

Two more limits apply. Tips earned while providing a service that is itself a crime do not count. And the IRS can disallow amounts that are really wages or prices relabeled as gratuities to grab the deduction.

How to tell what your restaurant is doing

Look at your pay stub. Distributed service charges must be paid as wages, so they usually show up in your regular pay, not your reported gratuities. If your employer adds automatic charges to large parties, ask how they are coded. That money should not be in box 12 code TP on your 2026 W-2.

How much will you actually save?

Your savings equal the deduction times your federal tax bracket. At the 12% rate, $10,000 of qualified tips saves about $1,200 in federal income tax. At 22%, it saves about $2,200. The full $25,000 deduction saves about $5,500 for someone in the 22% bracket. Payroll taxes stay the same.

The 2026 tax brackets set the 12% rate for single taxable income over $12,400 and the 22% rate over $50,400. For joint filers those lines are $24,800 and $100,800. A deduction saves money at the top rate you pay, so look at where your taxable income lands.

Qualified tips deducted	Saved at 12%	Saved at 22%	Saved at 24%
$5,000	$600	$1,100	$1,200
$10,000	$1,200	$2,200	$2,400
$18,000	$2,160	$3,960	$4,320
$25,000 (cap)	$3,000	$5,500	$6,000

These figures assume the whole deduction comes off income taxed at one rate. If the deduction drops part of your income into a lower bracket, the savings are a bit smaller. Workers whose income is already below the standard deduction owe little or no federal income tax, so the deduction may save them nothing.

What if you earn more than $25,000 in tips?

The cap applies per return, and a joint return does not double it. A bartender with $32,000 of reported tips deducts $25,000. The remaining $7,000 is taxed like any other wage. If both spouses work for tips, their combined deduction on a joint return is still limited to $25,000.

What is the income limit for no tax on tips?

There is no hard cutoff. The deduction starts shrinking when modified adjusted gross income passes $150,000 for single filers or $300,000 for joint filers. It drops $100 for each full $1,000 above that line. Someone with the full $25,000 deduction loses all of it at $400,000 single or $550,000 joint.

Modified adjusted gross income here means your adjusted gross income plus any foreign earned income or Puerto Rico and U.S. territory income you excluded. For most tipped workers, it is simply the AGI on Form 1040.

The 2026 draft Schedule 1-A spells out the math. Subtract the threshold from your MAGI, divide by $1,000, round down to a whole number, and multiply by $100. Subtract that from your capped tip amount.

Two phase-out examples

• Single, MAGI $160,500, $25,000 of tips. The excess is $10,500. Divided by $1,000 and rounded down, that is 10. The reduction is $1,000, so the deduction is $24,000.
• Married filing jointly, MAGI $342,800, $25,000 of tips. The excess is $42,800, which rounds down to 42. The reduction is $4,200, so the deduction is $20,800.

The reduction comes off your actual tip amount, not off $25,000. A single filer with $10,000 of tips loses it all at $250,000 of MAGI, well before $400,000.

Do you still pay Social Security and Medicare on tips?

Yes. The IRS says tips “are subject to federal income tax and generally are also subject to Social Security and Medicare taxes.” The deduction only lowers income tax. Employees still pay the 6.2% Social Security and 1.45% Medicare rates on reported tips, and self-employed workers still owe self-employment tax on tip income.

Underreporting to save on payroll tax backfires here. Tips that never reach a W-2, a 1099 or Form 4137 cannot be deducted at all, so hiding them shrinks the deduction you could have claimed.

Your reporting duties have not changed

• Keep a daily tip record. IRS Publication 531 explains the format.
• Report cash tips to your employer by the 10th of the next month, unless they total under $20 for the month with that employer.
• Report all tips on your return, including the ones you will deduct.

Can you get the savings in each paycheck?

You can. The 2026 Form W-4 has a Step 4(b) deductions worksheet. Line 1a asks for an estimate of your qualified tips, up to $25,000, if your total income is under $150,000 ($300,000 joint). Give the new W-4 to your employer and less federal tax is withheld.

Estimate on the low side if your tips swing a lot from season to season. If you overestimate, too little tax comes out during the year and you may owe at filing time.

How do self-employed and gig workers claim it?

Self-employed workers in a listed occupation can claim tips reported on a 1099-NEC, 1099-MISC or 1099-K. The deduction cannot exceed the net profit from the business where the tips were earned, figured before this deduction. You must keep records that show how much of your income was tips.

That net income limit matters for drivers and other gig workers with large vehicle costs. Suppose a delivery driver collects $9,000 in tips but shows only $6,000 of profit on Schedule C after mileage. The tip deduction stops at $6,000.

Records carry real weight here. In the IRS 2025 guidance, a self-employed travel guide got a 1099-K for $55,000 that did not split out tips. His daily log of $7,000 in tips by date and customer let him claim that amount.

• Save app earnings statements that show the tip line separately from fares or delivery fees.
• Write tips on invoices as a separate line after the job, not as part of the quoted price.
• Keep a log for cash tips from customers paid in person.

How do you claim it on your 2025 return?

Use Schedule 1-A (Form 1040), Part II, “No Tax on Tips.” Employees enter tips from W-2 box 7 or Form 4137, and self-employed workers enter tips from their 1099s. The total from Schedule 1-A goes on Form 1040, line 13b. Notice 2025-69 shows how to figure it without a separate tip statement.

The IRS announced that W-2 and 1099 forms for 2025 would not change. Employers got penalty relief from reporting tips separately for 2025 under Notice 2025-62. The 2025 Schedule 1-A works around that:

• Line 4a: qualified tips included in W-2 box 7 (social security tips).
• Line 4b: qualified tips on Form 4137, for tips you did not report to your employer.
• Line 4c: with one employer, the larger of 4a or 4b.
• Line 5: tips on a 1099-NEC, 1099-MISC or 1099-K, up to the business’s net profit.

The IRS examples help. A server whose W-2 box 7 shows $18,000 can use $18,000. A bartender who reported $20,000 to his employer on Forms 4070, while box 7 showed $15,000, could use either figure. He could also add $4,000 of unreported tips from Form 4137.

Before you claim anything, confirm your job appears on the IRS occupation list and note its code.

Already filed for 2025? The IRS says you can amend your return to claim or change the deduction using Form 1040-X. That matters most for visual artists, floral designers and gas pump attendants, who were only added when the list became final in April 2026.

What changes on your 2026 W-2 and 1099?

For tips earned in 2026, employers must report cash tips you reported to them in W-2 box 12 with code TP. A new box 14b shows up to two Treasury occupation codes. Businesses that pay independent workers must also list tips and the occupation code on 1099 forms. You will see these on forms issued in early 2027.

The 2026 W-2 instructions say employers enter “up to two code(s) based on the occupation(s) that the tips were received in.” If you worked three tipped roles for one employer, only two codes will appear.

When your 2026 W-2 arrives, compare box 12 code TP with your own tip records and box 7. If the code in box 14b looks wrong, ask your employer for a corrected W-2 before you file. The draft 2026 Schedule 1-A also asks for business details if you were self-employed, so keep your EIN or Schedule C information handy.

The 2026 Schedule 1-A is still a draft, created June 16, 2026, so line numbers may change. The $25,000 cap and the $150,000 and $300,000 thresholds are written into the statute, which has no inflation adjustment for them.

Can you claim the tip and overtime deductions together?

Yes. They are separate deductions on separate parts of Schedule 1-A, and the form adds them together. Tips have their own $25,000 cap. Overtime premium pay has a cap of $12,500, or $25,000 on a joint return. The same dollar cannot count twice, because the overtime rules exclude qualified tips.

A server who works more than 40 hours in a week can claim both: tips under Part II and the half-time overtime premium under Part III. Both deductions use the same $150,000 and $300,000 income thresholds, but each is reduced on its own line.

Overtime has a different 2026 catch: only amounts in W-2 box 12 code TT count. Our guide to no tax on overtime covers who qualifies, the premium math and that W-2 rule.

Does your state tax tips?

It depends on the state. The federal deduction does not change state income tax on its own. Some states follow it, some add it back, and some have their own rules. Two state tax agencies have spelled out their answer, and both are listed below.

• Colorado: the Colorado income tax guide says “no addback is required” for the federal qualified tips deduction. Colorado does require an addback for the overtime deduction starting in 2026, so the two are treated differently there.
• Michigan: Michigan Treasury says its matching deduction for qualified tips applies only to 2026, 2027 and 2028. It is not available on 2025 Michigan returns.

For any other state, check your state revenue department’s guidance before you file. Rules for 2025 and 2026 can differ, as Michigan shows.

A tipped worker’s checklist before filing season

1. Find your three-digit code on the IRS occupation list and write it down.
2. Keep a daily tip log, and split cash tips from card tips.
3. Report cash tips to your employer by the 10th of each month.
4. Ask how automatic service charges are paid, since they are wages, not tips.
5. Consider a new W-4 using Step 4(b), line 1a, if you want the savings in each check.
6. For 2025, gather W-2 box 7, any Form 4137 amounts, and 1099 tip records.
7. For 2026, check W-2 box 12 code TP and box 14b when forms arrive in early 2027.

If your income is low or moderate, the tip deduction is not the only tax break worth checking. Tipped workers may also qualify for the Earned Income Tax Credit, which is based on earned income and family size.

Related reading

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• Earned Income Tax Credit program guide
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