How the no tax on tips deduction works
For 2025–2028, workers in jobs where tipping is customary can deduct up to $25,000 of qualified tips from federal taxable income each year. You still report every tip, and Social Security and Medicare still apply; the deduction simply lowers the income the federal brackets are applied to. It is claimed on Schedule 1-A and is available whether you take the standard deduction or itemize.
Which tips qualify
- Customarily tipped occupations. The Treasury publishes the list — restaurant servers, bartenders, hairstylists, delivery drivers, casino dealers and many more. Tips in a job not on the list do not qualify.
- Voluntary tips. Cash, card and tip-pool tips count. Mandatory service charges added to a bill do not.
- Reported tips. Tips must be reported to your employer or on your return to count.
- Self-employed workers can claim it too, but the deduction cannot exceed the net income of the business where the tips were earned.
Cap and phase-out
The $25,000 cap is per return — a married couple filing jointly shares one $25,000 cap. Above $150,000 of modified adjusted gross income ($300,000 joint) the deduction falls by $100 per $1,000 of extra income. Married couples must file jointly, and you need a valid Social Security number.
Tips and state income tax
States set their own rules. Workers in states with no wage tax — Florida, Texas, Nevada, Tennessee and others — pay no state income tax on tips anyway. Some income-tax states follow the federal deduction; others, including California, still tax all tips. The calculator shows which case applies to the state you pick.