No Tax on Tips

Important Disclosure

The “No Tax on Tips” deduction does not make tips completely tax-free.

• Qualified tips reduce your federal taxable income, but Social Security and Medicare taxes still apply.
• Tips will be tax-free federally. You should check with your state to see if it will conform. Tips may still be taxable at the state or local level, depending on your state.
• Eligibility also depends on proper reporting and IRS guidelines.

The IRS and U.S. Treasury are still in the process of finalizing tax forms for the “No Tax on Tips” deduction. Updates will be provided once official reporting procedures are published.

Overview of Deduction

• Starting in 2025, qualified tips will be eligible for a new deduction. This deduction is up to $25,000 through 2028. They must meet specific criteria.
• The deduction phases out when modified adjusted gross income exceeds $150,000 ($300,000 MFJ).
  • The deduction begins to phase out once income exceeds $150,000. Based on the statute, for every $1,000 your income exceeds the threshold, the $25,000 adjustment is reduced by $100. This continues until the deduction reaches zero.
    • For single filers, the “No Tax on Tips” amount goes down slowly after exceeding $150,000. As a result, they can still get a reduced deduction until their modified adjusted gross income reaches $400,000.
    • Additionally, for married filing jointly, if modified adjusted gross income exceeds $300,000, you can still get a reduced deduction. This continues until your modified adjusted gross income reaches $550,000.
• Applies to both employees and certain self-employed workers (limited to net business income from tip-based activity).

To qualify, tips must be:

• Paid voluntarily by the customer
• Also, not subject to negotiation with the employer
• Plus, determined by the payer (Customer decides the amount)
• Along with, received in an occupation recognized on the IRS-approved list
• Additionally, not from a specified service trade or business (workers in a Specified Service Trade or Business are not eligible if either the worker or their employer is in an SSTB under section 199A)
• Finally, taxpayers must have a SSN, and tips must be reported to the employer/IRS via proper forms (W-2, 1099, or via Form 4137 if reported directly).

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Occupations that are on this list (Preliminary list provided by the IRS 8-27-2025) “Still Not yet Final”

Qualified tips mean cash tips received by an individual. Furthermore, the job where the worker earned those tips must be a job that normally received tips before December 31, 2024.

• Bartenders
• Wait Staff
• Food Servers, Non-restaurant
• Dining Room and Cafeteria attendants and Bartender Helpers
• Chefs and Cooks
• Food Preparation Workers
• Fast Food and Counter Workers
• Dishwashers
• Host Staff, Restaurant, Lounge, and Coffee Shop
• Bakers
• Gambling Dealers
• Gambling Change Persons and Booth Cashiers
• Gambling Cage Workers
• Gambling and Sports Book Writers and Runners
• Dancers
• Musicians and Singers
• Disc Jockeys, Except Radio
• Entertainers and Performers
• Digital Content Creators
• Ushers, Lobby Attendants, and Ticket Takers
• Locker Room, Coatroom, and Dressing Room Attendants
• Baggage Porters and Bellhops
• Concierges
• Hotel, Motel, and Resort Desk Clerks
• Maids and Housekeeping Cleaners
• Home Maintenance and Repair Workers
• Home Landscaping and Groundskeeping Workers
• Home Electricians
• Home Plumbers
• Home Heating and Air Conditioning Mechanics and Installers
• Home Appliance Installers and Repairers
• Home Cleaning Service Workers
• Locksmiths
• Roadside Assistance Workers

• Personal Care and Service Workers
• Private Event Planners
• Private Event and Portrait Photographers
• Private Event Videographers
• Event Officiants
• Pet Caretakers
• Tutors
• Nannies and Babysitters
• Skincare Specialists
• Massage Therapists
• Barbers, Hairdressers, Hairstylists, and Cosmetologists
• Shampooers
• Manicurists and Pedicurists
• Eyebrow Threading and Waxing Technicians
• Makeup Artists
• Exercise Trainers and Group Fitness Instructors
• Tattoo Artists and Piercers
• Tailors
• Shoe and Leather Workers and Repairers
• Golf Caddies
• Self-Enrichment Teachers
• Recreational and Tour Pilots
• Tour Guides and Escorts
• Travel Guides
• Sports and Recreation Instructors
• Parking and Valet Attendants
• Taxi and Rideshare Drivers and Chauffeurs
• Shuttle Drivers
• Goods Delivery People
• Personal Vehicle and Equipment Cleaners
• Private and Charter Bus Drivers
• Water Taxi Operators and Charter Boat Workers
• Rickshaw, Pedicab, and Carriage Drivers
• Home Movers

The IRS will provide the “Final” list of qualifying occupations by October 2, 2025. Update, This has still not been finalized as of October 25, 2025

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What this Deduction Does Not Do

• Not only, does this not remove the need to pay payroll taxes on your tips (Social Security, Medicare).
• But, it does not guarantee state tax relief (States may or may not conform)
• And, it does not apply to non-cash items (e.g., tickets, passes, free goods).

How this will be reported

The new “No Tax on Tips” deduction is handled through Schedule 1-A, where the IRS calculates your qualified tips and applies the proper limits and phaseouts. After that calculation is complete, the deduction moves to Form 1040, line 13b as part of your additional deductions.

Because this deduction is applied after the standard or itemized deduction, it only reduces your taxable income, not your AGI. As a result, it will not impact AGI-based credits, phaseouts, or IRMAA. You’ll still get the tax savings, but your AGI remains unchanged for all other calculations.