Back to research

Compliance

What the New “No Tax on Tips” Deduction Means for Gig Workers and Service Employees

Find out how the newly enacted “No Tax on Tips” provision works, who qualifies, and how to claim it properly for tax year 2025.

By NomadicTax Research Team · 5-8 min read

Overview of the Tips Deduction

Under the One, Big, Beautiful Bill, employees and self-employed individuals in certain occupations that customarily and regularly receive tips as of December 31, 2024 may claim a deduction for qualified tips they receive. The deduction applies to tax years 2025 through 2028. (irs.gov)

What Are “Qualified Tips”?

  • Voluntary cash or charged tips, including shared tips, given directly from customers. (irs.gov)
  • Tip amounts must be reported on certain statements or via Form 4137. Tips not reported or below reporting thresholds are generally not eligible. (irs.gov)
  • Must work in a qualifying occupation on the official “List of Occupations that Receive Tips” published by the Treasury. (irs.gov)

Limitations & Phase-Outs

  • Deduction limit is up to $25,000 annually. (irs.gov)
  • Phases out for MAGI above $150,000 (single) or $300,000 (joint). (irs.gov)
  • If you’re self-employed, you can’t exceed the net income from that business before taking this deduction. (irs.gov)

Claiming the Deduction & Filing Details

  • The deduction is on Schedule 1-A (Form 1040) used in tax year 2025 for these deductions. (tax.thomsonreuters.com)
  • Whether you take standard deduction or itemize, this deduction is available. (irs.gov)
  • You must have a valid Social Security number (SSN). Married taxpayers must file jointly to claim this deduction. (irs.gov)

Examples

  • A server in a restaurant in 2025 with MAGI of $80,000 who gets $20,000 in tips can deduct the full $20,000 (within cap of $25,000).
  • A musician streaming content that is occasionally tipped via digital platforms: If they are on the occupations list and tips are delivered as “qualified tips,” they may qualify. However, superficial digital rewards from fans that aren’t included in statements or handed-off by platforms may not count. (irs.gov)

Actionable Advice

  • Confirm whether your occupation is listed among the qualifying tip-receiving professions.
  • Track all tips via recorded statements or from platforms; ask for Forms/statements if not automatically furnished.
  • If MAGI will be near phase-out, consider timing income or deductions to stay under thresholds.

Sources

Structured source metadata was not recorded; see citations in the article body.