No tax on tips: who qualifies and how much you can deduct

What counts as a qualified tip

Voluntary tips, in an occupation on the IRS list.

The IRS defines qualified tips as voluntary cash or charged tips received from customers, including shared tips. Schedule 1-A adds that the tips must have been received in an occupation listed at IRS.gov/TippedOccupations. Because the definition requires the tip to be voluntary, an amount a customer is required to pay is not the same thing.

The IRS worked examples

Which number to use depends on how the tips were reported.

The travel guide example is the reason to keep a tip log: the IRS allowed the logged figure because each tip was recorded with its date and customer.

The limit and the income phase-out

$25,000 per return, even for a married couple filing jointly.

Schedule 1-A caps qualified tips at $25,000, and line 7 has no higher figure for joint returns. The deduction is then reduced when modified adjusted gross income is over $150,000 ($300,000 joint): divide the excess by $1,000, round down, and multiply by $100. If you are self-employed, the deduction cannot exceed your net income from the business in which the tips were earned.

Who can claim it

The same basic rules as the overtime deduction.

• The IRS describes the deduction as available for tax years 2025 through 2028, and estimates that about 6 million workers report tipped wages.
• You need a valid Social Security number.
• Married taxpayers must file jointly.
• It applies whether you itemize or take the standard deduction.

What the deduction is worth

Multiply by your federal bracket, not by the headline.

An $18,000 tips deduction is worth about $2,160 to someone in the 12% bracket. Social Security and Medicare taxes are figured on wages and reported tips rather than on taxable income, so they still apply, and state treatment depends on your state.

Not tax advice. Figures follow the 2025 Schedule 1-A. Check the current year’s form and instructions, or ask a tax professional, before you file.