No tax on tips: how the deduction works
From 2025 to 2028, workers in more than 70 tipped occupations can deduct up to $25,000 of qualified tips a year from federal income tax.
By the Sproutcalc team · Figures last checked · How we calculate
Short answer: if your job is on the IRS list and your tips are reported on a W-2, 1099 or Form 4137, you can deduct them up to $25,000. The deduction shrinks above $150,000 of income ($300,000 joint).
Work out your number
Enter your reported tips and income.
What counts as a qualified tip
- Paid voluntarily by the customer, not negotiated.
- Paid in cash or a cash equivalent: card, check, gift card or a payment app.
- Received from customers, or through a tip pool or tip sharing.
- Received in an occupation on the IRS list. See all 71 occupations.
Mandatory service charges added to the bill aren't tips, unless the customer can change or remove them.
Who can't claim it
- Married people filing separately.
- Anyone without a Social Security number on the return.
- Self-employed people in a specified service trade or business, and employees of one.
Self-employed and gig workers
You can qualify if your occupation is on the list. The deduction can't be more than your net income from that work, before this deduction.
Where the number comes from
From tax year 2026, W-2s show cash tips in box 12, code TP, and your occupation code in the new box 14b.
Questions people ask
Does this cut my Social Security tax on tips?
No. It reduces federal income tax only.
I'm a rideshare driver. Am I covered?
Taxi and rideshare drivers and chauffeurs are on the list as occupation 802.