No tax on tips: how the deduction works
"No tax on tips" is a federal income tax deduction for tax years 2025–2028: up to $25,000 of qualified tips a year, claimed when you file. The limit is the same for single and joint returns.
Which tips count
- Cash or card tips, including tips shared through a tip pool, that the customer gives voluntarily — not a charge you negotiate or one added automatically.
- In an occupation that customarily and regularly received tips on or before December 31, 2024 — wait staff, bartenders, salon workers, personal trainers, gig workers and many more, on a list the Treasury publishes.
- Tips reported on a W-2 or 1099, or reported by you on Form 4137. Tips you never report don't count.
- Not received in a "specified service trade or business" as the tax code defines it — fields such as health, law and consulting.
How much it's worth
| Tips in the year | Deduction | Tax saved at 12% | at 22% |
|---|---|---|---|
| $8,000 in tips | $8,000 | $960 | $1,760 |
| $18,000 in tips | $18,000 | $2,160 | $3,960 |
| $32,000 in tips | $25,000 | $3,000 | $5,500 |
Income under $150,000. The saving is the deduction times your top federal tax bracket.
The income limit
The deduction shrinks by $100 for each $1,000 of modified adjusted gross income over $150,000 ($300,000 joint). At $180,000, a $20,000 tips deduction is cut by $3,000 to $17,000.
What it doesn't change
Social Security (6.2%) and Medicare (1.45%) still come out, and your state decides for itself whether to follow the deduction. Your paycheck withholding stays the same unless you give your employer a new W-4 — the saving arrives when you file.
Keep reporting all your tips to your employer: Social Security and Medicare are still owed on them, and unreported tips can't be deducted. You claim the deduction on Schedule 1-A, whether you take the standard deduction or itemize.
Working out a paycheck with tips? Use your state's hourly paycheck calculator.
Sources
- 26 U.S. Code § 224 — Qualified tips — $25,000 cap; reduced by $100 for each $1,000 of MAGI over $150,000 ($300,000 joint); voluntary tips in an occupation that customarily received tips on or before December 31, 2024; not in a specified service trade or business; ends after 2028
- IRS Tax Tip 2026-06 — How to take advantage of no tax on tips and overtime (January 26, 2026) — tips up to $25,000; overtime up to $12,500 ($25,000 joint); phase-out over $150,000 MAGI ($300,000 joint); itemizers and non-itemizers
- IRS — Schedule used to claim no tax on tips, overtime, car loans and seniors (March 2, 2026) — claimed on Schedule 1-A; whether you take the standard deduction or itemize
- IRS Notice 2025-69 — Guidance for tax year 2025 tips and overtime — how to work out 2025 amounts before employers reported them separately
- Social Security Administration — 2026 wage base of $184,500
Questions
Are tips tax-free now?
Not on your paycheck. For 2025–2028 you can deduct up to $25,000 of qualified tips on your federal return. Social Security and Medicare still apply, and so may state tax.
Who qualifies for no tax on tips?
Workers in occupations that customarily received tips on or before December 31, 2024 — on the Treasury's list — for voluntary tips reported on a W-2, 1099 or Form 4137.
Is the tips deduction $25,000 for married couples?
Yes — $25,000 per return, whether single or joint. It's reduced once income passes $150,000 ($300,000 joint).
Do I still pay Social Security on tips?
Yes. The deduction is only for federal income tax; Social Security (6.2%) and Medicare (1.45%) are still owed on reported tips.