What the “No Tax on Tips” deduction means for you

March 5, 2026

Employees and self-employed individuals may be able to deduct qualified tips received in certain qualified occupations from their 2025 federal tax return.

Here are some key things to know about this deduction:

• “Qualified tips” are voluntary cash or charged tips received from customers including shared tips.
• Maximum annual deduction is $25,000.
• If you’re self-employed, the deduction can’t exceed your net income, before this deduction, from the trade or business where tips were earned.
• Phases out if your modified adjusted gross income is over $150,000; $300,000 for joint filers.
• If married, you must file jointly.
• Must have a valid Social Security number.
• Deduction is available whether you itemize or take the standard deduction.

For examples of how “no tax on tips” is calculated, review this news release.