No Tax on Tips Deduction - Information and How-To - 2025 only

Sep 19, 2026

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The “No Tax on Tips” deduction lets eligible taxpayers claim an additional deduction for qualified tip income while still reporting all tips as income on their tax return. Qualified tips include cash and charged tips reported on Form W-2, unreported tips, and self-employment tip income, but only when earned in an IRS-recognized Treasury Tipped Occupation (TTOC). The deduction does not remove Social Security and Medicare tax filing requirements and is claimed on Schedule 1-A, with strict eligibility limits and step-by-step TaxSlayer entry instructions for reported and unreported tips.

LanguageEnglish

CategoryForms

FormatPDF

Pages5

Reading Time2 min

AccessFree to download

Introduction

Eligibility overview

Step 1: Determine if the taxpayer qualifies

Step 2: Complete TaxSlayer entry for all tip income

Step 3: Claim the No Tax on Tips deduction

“No Tax on Tips” Deduction: Information and How-To (2025 only) Introduction The No Tax on Tips deduction allows eligible taxpayers to claim an additional deduction for qualified tip income while still properly reporting all tips as income on their tax return. Qualified tips generally include cash and charged tips reported on Form W-2, unreported tips, and tip income for self-employed taxpayers. In order to qualify for the deduction, the tips must be earned in an occupation that customarily and regularly receives tips and is recognized by the IRS as a Treasury Tipped Occupation (TTOC) . The No Tax on Tips deduction does not eliminate the requirement to report tips or pay Social Security and Medicare taxes on them. It reduces taxable income by claiming an additional deduction on Schedule 1-A. ● Taxpayers must have a Social Security Number (SSN) that is valid for employment. In the case of a joint return, the tip earner must have a valid SSN to claim the deduction. ● Filing status cannot be Married Filing Separately. ● Tips must be received for work in occupations listed by the IRS as regularly and customarily receiving tips. ● The maximum allowed deduction is $25,000 for the year, per return and not per person. To assist the taxpayer, complete the following steps. Step 1: Determine if the Taxpayer Qualifies for the No Tax on Tips Deduction Before you claim the deduction, you must determine whether the taxpayer is eligible for the deduction. 1. Does the taxpayer who may have earned tips have a Social Security Number and a filing status that isnot Married Filing Separately? ● If NO, stop. The deduction is not allowed. ● If YES, continue to step 2 below. 2. Did the taxpayer receive tips as part of their income? The taxpayer may have: ○ checked “Yes” to Tip Income on Form 13614-C; ○ have an amount listed in Form W-2, Box 7 (Social Security Tips); ○ have an amount listed in Form W-2, Box 8 (Allocated Tips); ○ have an amount listed in Box 14, Code TP; ○ a statement from the employer; and/or ○ tips from self-employment that are self-identified or appear on a driver dashboard (for 02/2026 version 2.1 rideshare drivers) or other documentation ● If NO, stop. The deduction is not allowed. ● If YES, continue to step 3 below. 3. Were the tips received in cash, from a credit/debit card, or from a tip sharing arrangement? ● If NO, stop. The deduction is not allowed. ● If YES, continue to step 4 below. 4. Were the tips freely given by clients, without being required, negotiated, or included as part of a service price? ( Note that tips automatically added at a set rate to a bill based on company policy are not eligible for the deduction. ) ● If NO, stop. The deduction is not allowed. ● If YES, continue to step 5 below. 5. Is the taxpayer’s job on the IRS list of occupations that customarily received tips before 2025? See Treasury Tipped Occupation Codes (TTOC) for a list of qualified occupations. (The taxpayer may have Form W-2, Box 14 Code TTOC that identifies the occupation code. ) ● If NO, stop. The deduction is not allowed. ● If YES, continue to step 6 below. 6. Was the tip properly reported on Form W-2 or Form 1099—or will be reported on Form 4137, Social Security and Medicare Tax on Unreported Tip Income and properly designated tip income? ● If NO, stop. The deduction is not allowed. ● If YES, continue to step 7 below. 7. If the tips were earned through self-employment, will the taxpayer report a business loss? (A business loss is when business expenses exceed business income including tips. ) ● If YES, stop. The deduction is not allowed. ● If NO or the taxpayer is not self-employed, continue to step 8 below. 8. Is the taxpayer’s MAGI below $150,000 (or $300,000 if Married Filing Jointly)? ● If NO, the deduction is allowed but your deduction is reduced by $100 for every $1,000 above the threshold.. ● If YES, the deduction is allowed up to $25,000, or the

FAQs

What does the “No Tax on Tips” deduction allow taxpayers to do?

It allows eligible taxpayers to claim an additional deduction for qualified tip income while still reporting all tips as income on their tax return.

What tips qualify for the deduction?

Qualified tips generally include cash and charged tips reported on Form W-2, unreported tips, and tip income for self-employed taxpayers, earned in an occupation that is routinely tipped and recognized by the IRS as a Treasury Tipped Occupation (TTOC).

Does the deduction eliminate Social Security and Medicare taxes on tip income?

No. The deduction does not eliminate reporting or Social Security and Medicare tax requirements; it reduces taxable income by claiming an additional deduction on Schedule 1-A.

Sep 19, 2026

Upload by Rhys