Tax Planning
How Gig Workers Can Maximize the ‘Qualified Tips’ Deduction Under the One, Big, Beautiful Bill
Gig economy and tipped workers now have access to a new deduction for qualified tips—worth up to $25,000 annually—with rules tailored by occupation and income thresholds.
By NomadicTax Research Team • 5-8 min read • June 23, 2026
## Overview of the Qualified Tips Deduction
Under the One, Big, Beautiful Bill (Public Law 119-21), new **section 224** of the Internal Revenue Code creates a deduction for "qualified tips" for eligible individuals. This applies to tips received by workers in occupations that **customarily and regularly received tips on or before December 31, 2024**. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions-individuals-and-workers?utm_source=openai))
*Limitations:* deduction is capped at **$25,000 per taxable year**, regardless of filing status. Phase-outs begin once modified adjusted gross income (MAGI) exceeds **$150,000** (or **$300,000** for joint returns). ([irs.gov](https://www.irs.gov/irb/2025-42_IRB/index.html?utm_source=openai))
## Who Qualifies and What Counts
- Occupation: the occupation must be on a list that the IRS will publish—there are nearly **70 occupations** under proposed regulations, spanning food service, personal services, hospitality, home services, transportation, etc. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-listing-occupations-where-workers-customarily-and-regularly-receive-tips-under-the-one-big-beautiful-bill?utm_source=openai))
- Tip type: “qualified tips” include cash, check, credit card, debit card, gift card or tokens readily convertible to cash. Service charges counted as tips only if voluntary. Illegal or negotiated tips, or those from felonies or misdemeanors, are excluded. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-guidance-listing-occupations-where-workers-customarily-and-regularly-receive-tips-under-the-one-big-beautiful-bill?utm_source=openai))
## Example Scenarios
| Scenario | Income | Tip-Eligible Occupation? | Deduction | Phase-out effect |
|---|---|---|---|---|
| Single bartender making $60,000/year with $20,000 in qualified tips | $60,000 | Yes | Full $20,000 deduction | No phase-out (well below $150,000 MAGI) |
| Married couple filing jointly, MAGI $320,000 (combined), one spouse is a server with $30,000 in qualified tips | $320,000 | Yes | $25,000 limit applies then reduced due to phase-out | Phase-out reduces beyond limit (MAGI $320,000; joint threshold $300,000) |
## Actionable Strategies
1. **Track tip income carefully.** Keep accurate records of tips received via all mediums—credit card, mobile app, etc.—to substantiate deductions.
2. **Monitor income thresholds.** If your MAGI is near phase-out levels, consider deferring income or accelerating deductions.
3. **Occupational classification matters.** Ensure your occupation is—or will be—on the approved occupations list. If unsure, hold back claiming until the final regulations are published.
4. **Proper filing.** You must include your **Social Security Number (SSN)** on returns to claim the deduction. Married couples must file jointly if either spouse is using the tip deduction. ITIN holders are **not eligible** under proposed rules. ([irs.gov](https://www.irs.gov/irb/2025-42_IRB/index.html?utm_source=openai))
## Timeline & Next Steps
- Since the law takes effect for **taxable years after December 31, 2024**, 2025 returns onward are subject. ([irs.gov](https://www.irs.gov/irb/2025-42_IRB/index.html?utm_source=openai))
- Proposed regulations have been issued; public comment periods are open or concluded; watch for finalized list of occupations and guidance.
- If you receive both tip income and wage income, or have fluctuating MAGI, consult a tax professional to optimize how much of your tip income is deductible vs taxable.
**Bottom line:** If you’re a tipped worker in a qualifying occupation, you can significantly reduce your taxable income under section 224—up to $25,000—if you structure things carefully and meet the occupation, income, and reporting requirements.