Article: 50649
Overview
You may be eligible to take a federal income tax deduction for qualified tips (the “no tax on tips” provision of the new tax bill). This allows eligible taxpayers to deduct qualified tip income from federal taxable income.
The deduction is claimed on Schedule 1-A – Additional Deductions as a federal income tax deduction.
Qualified tips must:
- be cash or charged tips received in an occupation that customarily and regularly received tips before 12/31/2024.
- See the proposed rule document that discusses occupations that customarily and regularly received tips. Additional guidance may be forthcoming.
- be voluntary, not negotiated or required in advance, and determined by the payor.
- Mandatory service charges or automatic gratuities added by a business generally do not qualify.
- not be received in the course of a trade or business that is a specified service trade or business (SSTB).
The deduction:
- is up to $25,000 (per return).
- can be claimed by both itemizing and non-itemizing taxpayers.
- is not available for taxpayers who file Married Filing Separately (MFS).
- is subject to a MAGI phase-out starting at $150,000 ($300,000 MFJ). The deduction may be reduced or eliminated for higher-income taxpayers.
Notes:
- Qualified tips generally include cash tips, charged tips, and allocated tips that are reported as income and reported on an eligible information statement or reported by the taxpayer, as applicable.
- Non-tip wages and service charges do not qualify.
- The deduction applies only to federal income tax.
Tip income remains subject to Social Security, Medicare, and applicable state taxes.
How to Report
- Go to the Review tab on the left side of the screen.
- Under the Federal Taxes section, click I’d like to see the forms I’ve filled out or search for a form.
- In the search box, type Additional Deductions – No Tax on Tips.
- Alternatively, click the General tab and locate the form there.
- Select Additional Deductions – No Tax on Tips to add and open the form.
- Enter the applicable tip income information.
- Click Save to apply the deduction.
1040.com will calculate any applicable limitation or phaseout automatically based on the information entered in the return.
Related Links
This new tax bill was signed into law on July 4, 2025. The One Big Beautiful Bill Act (OBBB or OB3) is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used, but they refer to the same set of tax changes.