No Tax on Tips Guide

You can deduct up to $25,000 a year of qualified tips from your federal taxable income for tax years 2025 through 2028 if you work in an occupation on Treasury's official tipped-occupation list, the tips are voluntary, and they are reported on a W-2, a 1099, or Form 4137. The deduction shrinks by $100 for every full $1,000 of modified AGI above $150,000 ($300,000 on a joint return), it does not reduce Social Security or Medicare tax, and married couples must file jointly.

This guide explains the rules, then goes occupation by occupation. To estimate your own deduction, use the no tax on tips calculator.

Where the rule comes from

Section 70201 of Public Law 119-21 created 26 U.S.C. §224. Treasury and the IRS then issued final regulations — TD 10044, published April 13, 2026 — that define a qualified tip and list the occupations that "customarily and regularly received tips on or before December 31, 2024." Each occupation has a three-digit Treasury Tipped Occupation Code (TTOC), published at IRS.gov/TippedOccupations.

The deduction is claimed on Schedule 1-A, Part II, whether you itemize or take the standard deduction. It is subtracted after AGI, so it does not lower AGI-based figures elsewhere on your return.

The five tests every tip must pass

1. Occupation. You received the tip while working in a listed occupation. The list is closed, though the examples under each code are not exhaustive. Assistants and apprentices who perform the same services are included.
2. Voluntary. The customer paid it without compulsion, with no consequence for not paying, did not negotiate it, and decided the amount.
3. Cash medium. Cash, check, credit or debit card, gift card, payment app, foreign currency, and casino chips all count. Noncash items such as event tickets or meals do not, and digital assets are excluded.
4. Reported. The tip appears on a Form W-2, Form 1099-NEC, 1099-MISC, or 1099-K, or you reported it yourself on Form 4137.
5. Not from a specified service trade or business (SSTB). See the SSTB section below — this test is suspended in practice for now.

You also need a Social Security number valid for employment, issued by the return's due date, and if you are married you must file jointly.

Tips vs service charges: the line that trips up most workers

The final regulations draw a bright line: mandatory amounts added by the business are not tips, even if every dollar goes to staff. Their examples translate directly to everyday situations:

If you are paid a share of a mandatory service charge, it is wages on your W-2, taxed and withheld like any other pay, and not deductible under this provision.

Tip pools, tip-outs, and managers

• Pooled and shared tips count. For employees, tips received through a mandatory or voluntary tip-sharing arrangement are qualified tips. A busser, bar back, or food runner who receives a share of the servers' pool can deduct it.
• Report only what you keep. Under IRS Publication 531, when you tip out other employees you report only the tips you receive and retain, and the person receiving the tip-out reports it. Each dollar is counted once.
• Managers and supervisors. Amounts a manager receives through a tip pool are not qualified tips. A tip paid directly to a manager while the manager is working as wait staff, a listed occupation, does qualify.
• Employer-paid "tips." If the employer is the payer, the amount is treated as recharacterized wages and is never a qualified tip.

Occupation-by-occupation rules

The codes below come from Table 1 of the final regulations.

Restaurant servers, hosts, and bussers

Wait staff are TTOC 102, which explicitly includes banquet staff and cocktail servers. Room-service and other non-restaurant servers are 103; bussers, bar backs, and dining-room attendants who share tips are 104; hosts and maître d's are 109. Cooks, chefs, dishwashers, and bakers have their own codes (105, 106, 108, 110), so back-of-house staff who receive a pool share can qualify too. As employees, you report cash tips to your employer by the 10th of the following month when they total $20 or more in a month; those reported tips show on your W-2. Allocated tips in W-2 box 8 that you did not actually report are handled on Form 4137 if you must include them in income.

Bartenders

Bartenders, mixologists, taproom attendants, and sommeliers are TTOC 101. Bartenders often work under a tip pool with bar backs; you deduct what you keep after the tip-out. Bartenders at venues that add a mandatory service charge to private events should separate those charges, which are wages, from voluntary tips on the open bar.

Casino dealers and gaming staff ("tokes")

Table-game dealers — blackjack, craps, poker, roulette — are TTOC 201. Slot attendants and change persons are 202, cage cashiers 203, and sportsbook and keno runners 204. Tokes paid in chips count because chips are readily exchangeable for a fixed amount of cash. Dealer tokes are usually pooled and distributed through payroll, which works for the deduction. If your casino participates in the IRS Gaming Industry Tip Compliance Agreement program, the final rules let you use the agreed tip rate (plus anything extra you report on Form 4137) as your qualified tips, without losing the program's audit protection.

Hotel, housekeeping, and guest services

Bellhops, baggage porters, and doormen are TTOC 301; concierges 302; front-desk clerks 303; and maids and housekeeping cleaners 304. Tips left in the room for housekeeping are qualified tips if they are reported, which in practice means telling your employer about cash envelope tips by the monthly deadline so they reach your W-2. Resort fees and mandatory "housekeeping charges" added to a guest's folio are service charges, not tips. Hotel valets fall under parking and valet attendants (801).

Food-delivery drivers and couriers

Goods delivery people are TTOC 804, which covers pizza, grocery, floral, and package delivery and — added in the final rules — app- and platform-based delivery workers. An employee driver for a restaurant reports tips through payroll like a server. An app-based courier is generally self-employed: the tips appear in the platform's 1099 reporting, and the deduction is limited to your net profit from delivery after expenses such as mileage. A courier with $8,000 of tips but only $6,500 of net profit after the standard mileage deduction can deduct only $6,500.

Rideshare, taxi, and limo drivers

Taxi drivers, rideshare drivers, and chauffeurs are TTOC 802, and the final list names platform/app-based rideshare drivers explicitly. Shuttle drivers are 803, and charter bus drivers 806. Rideshare tips paid in the app count. Fares, surge pricing, and booking fees do not. Because you are self-employed, the same net-profit ceiling applies, and you still owe self-employment tax on the tips. If the platform's statement does not break out tips, use the app's annual earnings summary to separate them from fares.

Salon, barber, and nail workers — including booth renters

Barbers, hairdressers, hairstylists, and cosmetologists are TTOC 603; shampooers 604; manicurists and pedicurists 605; eyebrow and eyelash technicians 606; makeup artists 607; skincare specialists 601; and massage therapists 602.

• Salon employees report tips to the salon and see them on their W-2.
• Booth renters and suite owners are self-employed. Tips count only if they are included on a 1099 you receive or otherwise reported as the rules require, and the deduction cannot exceed your net profit from the business. In the regulation's example, a self-employed manicurist with $75,000 of gross income (including $20,000 of tips) and $60,000 of expenses, such as booth rent and supplies, can deduct only $15,000 of tips. A manicurist with $100,000 of gross income and $40,000 of expenses deducts the full $25,000 cap.
• Tips via card readers that the client chooses are qualified; a mandatory "service fee" is not.

Other listed occupations

The list goes well beyond hospitality: golf caddies (701), tour guides (704), parking attendants (801), movers (809), home-service trades such as handymen, plumbers, and electricians (400s), dog groomers and pet sitters (506), wedding planners and photographers (502–504), tutors (507), nannies (508), and digital content creators who receive voluntary tips from viewers (209). If your job is not on the list — retail cashiers and restaurant managers, for example — tips you receive in that role do not qualify.

The SSTB exclusion and its transition relief

The statute excludes tips received in a specified service trade or business under Section 199A, such as health, law, performing arts, athletics, and consulting, and for employees it looks at the employer's business. The final regulations reserved this issue for later rulemaking. Until January 1 of the year after final SSTB rules are issued, Notice 2025-69 says the IRS will treat anyone in a listed occupation as not in an SSTB. For now, a musician or dancer in a listed occupation can claim the deduction.

How tips are reported: W-2 vs 1099, 2025 vs 2026

Employees (W-2). For 2025, employers were not required to break out qualified tips separately; Schedule 1-A line 4a uses the tips in Form W-2 box 7 (Social Security tips), and line 4b picks up tips you reported on Form 4137. Starting with 2026 wages, the Form W-2 instructions add box 12 code TP for total cash tips reported to the employer and new box 14b for up to two TTOC codes. A "000" in box 14b means some tips came from a nonqualifying occupation. Tips of $20 or more a month remain subject to income tax withholding and Social Security and Medicare tax.

Self-employed (1099). Schedule 1-A line 5 uses the qualified tips included in Form 1099-NEC box 1, Form 1099-MISC box 3, or Form 1099-K box 1a, capped at the business's net profit. A 1099 issued to your single-member LLC counts as issued to you.

How much is the deduction? The phase-out math

Schedule 1-A lines 7 to 13 work like this: take the smaller of your qualified tips or $25,000; subtract $150,000 ($300,000 joint) from MAGI; divide the excess by $1,000 and round down; multiply by $100; subtract.

Example from the regulations. A single employee receives $10,000 of qualified tips and has MAGI of $180,000. The excess is $30,000, or 30 units, so the reduction is $3,000 and the deduction is $7,000. Note that the reduction comes off the tips themselves, not off the $25,000 cap.

For a single server earning less than $150,000 of MAGI, nothing phases out. If that server had $18,000 of reported tips and is in the 12% bracket, the federal income tax saving is about $18,000 × 12% = $2,160.

Mistakes to avoid

• Deducting mandatory service charges or auto-gratuities.
• Deducting tips you passed on in a tip-out.
• Assuming two tipped spouses get $50,000 — the cap is $25,000 per return.
• Claiming cash tips you never reported to your employer or on Form 4137.
• Forgetting that self-employed tips are capped at net profit.
• Expecting lower payroll taxes; FICA and self-employment tax still apply.

Related deductions

Many tipped workers also receive overtime. The two deductions have different caps and stack on different dollars — see tips vs overtime and the no tax on overtime guide. To add tips, overtime, car loan interest, and the senior deduction together, use the WFTC savings estimator, and for the full package read Working Families Tax Cuts explained.