Who Qualifies for the No Tax on Tips Deduction?

The tips deduction under IRC §224 lets eligible workers deduct up to $25,000 of qualified tips per return for tax years 2025 through 2028. Miss any one eligibility test and the deduction is $0. Here is each test in plain English.

Want a quick answer? The Tips & Overtime Deduction Calculator asks the key eligibility questions and flags anything that could block the deduction.

What are the eligibility tests at a glance?

Test	What it means	Where it comes from
Social Security number	Your own valid SSN, work-authorized, issued before the return's due date. An ITIN is not enough.	IRC §224(e)
Filing status	Married? You must file a joint return. Married filing separately can't claim it.	IRC §224(f)
Tax year	2025, 2026, 2027 or 2028 only	IRC §224(h)
Qualified tips	Voluntary, not negotiated, amount set by the customer, paid in cash or charged	IRC §224(d)
Occupation	One that customarily and regularly received tips on or before December 31, 2024 (Treasury list)	IRC §224(d)(1)
Reported	Shown on a W-2, a 1099 or your own Form 4137	IRC §224(d); Notice 2025-69
Not an SSTB	Tips not received in a specified service trade or business (transition relief applies)	IRC §224(d)(2)
Self-employed limit	Tips count only up to the net profit of that business	IRC §224(c)
Income	Reduced by $100 per full $1,000 of MAGI over $150,000 ($300,000 joint); fully phased out at $400,000 ($550,000 joint) for a $25,000 claim	IRC §224(b)(2)

Do you need a Social Security number?

Yes. You must include your own Social Security number on the return. It has to be valid for work and issued before the return's due date, which is the same definition used for the child tax credit (IRC §24(h)(7)). An Individual Taxpayer Identification Number (ITIN) does not qualify.

What if you're married?

You must file a joint return to claim the deduction. Married filing separately can't claim it, so factor this in if you're comparing the two.

On a joint return, the $25,000 cap is per return. Two tipped spouses share one cap.

What counts as a "qualified tip"?

A qualified tip must be:

Voluntary. The customer isn't required to pay it.
Not negotiated. It isn't the result of a bargain between you and the customer.
Set by the payor. The customer decides the amount.
Paid in cash or charged. Cash, card and similar charged tips count.

Mandatory service charges don't count. IRS Publication 15 (2026) is clear on this. If a restaurant automatically adds a percentage to large-party bills, that charge is not a qualified tip, even if the staff receive it.

For employees, tips received through a tip-sharing arrangement can count. IRC §224(d)(3) says "cash tips" include, for an employee, tips received under any tip-sharing arrangement.

Is your job on the tipped-occupation list?

The tips must be received in an occupation that customarily and regularly received tips on or before December 31, 2024. Treasury was told to publish a list. On September 19, 2025, it published proposed regulations (REG-110032-25, 90 FR 45340) with a proposed list of eligible occupations and a proposed definition of qualified tips.

IRS Notice 2025-69 says taxpayers may rely on those proposed regulations, including the occupation list, for tax years beginning after December 31, 2024 and until final regulations are published. There's a condition: you must follow the proposed regulations in their entirety and consistently.

For tax year 2026, the forms carry an occupation code: W-2 box 14b, 1099-NEC box 1c, 1099-MISC box 13b and 1099-K box 1d. For 2025 it may not appear, so you (or your preparer) decide whether your job was customarily tipped.

What is the SSTB exclusion?

Tips received in a specified service trade or business (SSTB) don't qualify. SSTB is a term from the qualified business income rules (IRC §199A(d)(2)). It covers fields such as health, law, accounting, performing arts, consulting, athletics and financial services. For employees, the test looks at your employer's business, not your own role.

Notice 2025-69 gives transition relief. Until January 1 of the first calendar year after final SSTB regulations are issued, the IRS will treat tips received in a listed tipped occupation as not received in an SSTB. The notice applies the same relief to non-employees (self-employed people and contractors). In practice, for now, the SSTB test is unlikely to block tips from a listed occupation. That could change once final regulations are issued.

What if you're self-employed?

Self-employed people and independent contractors can claim the tips deduction, with two extra limits:

Net profit limit. Tips count only to the extent that the gross income of that business, including the tips, exceeds the deductions allocable to it (not counting the tips deduction itself). In short, your tips deduction from a business can't exceed that business's net profit.
SSTB test. For non-employees, the test looks at your own business. The transition relief above applies to listed occupations.

Your tips should appear on a 1099. For 2026, look at Form 1099-NEC box 1b, Form 1099-MISC box 13a or Form 1099-K box 1c.

Self-employment tax still applies to all of your tips. If you pay quarterly estimated taxes, our Quarterly Estimated Tax Calculator can help you plan.

What about tips you didn't report to your employer?

Tips must be reported to count. Employees can report unreported tips on Form 4137 with their return, and Notice 2025-69 lets 2025 filers include Form 4137 line 4 amounts. Social Security and Medicare tax then applies to those tips too.

A quick eligibility example

Hypothetical example, computed with our calculator. A single bartender with a work-authorized SSN earns $48,000 of MAGI in 2026, including $14,000 of card and cash tips reported to the employer. Bartending is a customarily tipped occupation. The tips deduction is $14,000. Assuming the standard deduction and no credits, the estimated federal income tax saving is about $1,680. Social Security and Medicare tax on the tips don't change.

Married and filing separately, the deduction would be $0.

When should you ask a professional?

Consider a review if you're unsure whether your occupation is listed, you have both W-2 and 1099 tips, you're self-employed with thin margins, or you're weighing a joint versus separate return. RAHA's Tax Return with Tips & Overtime Deductions is a fixed-price service, quoted upfront. Request a consultation or learn about our tax filing services.

For the whole picture, read No Tax on Tips and Overtime (2025–2028): Complete Guide. If you also work overtime, see What Counts as Qualified Overtime?.

Frequently asked questions

Can I claim the tips deduction with an ITIN?

No. You need a valid, work-authorized Social Security number issued before your return's due date.

Are automatic service charges on restaurant bills tips?

No. Mandatory service charges are not qualified tips, even if they are passed on to staff.

My spouse and I both get tips. Do we each get $25,000?

No. The $25,000 cap applies per return, so a married couple filing jointly shares one $25,000 cap.

How do I know if my job is on the tipped-occupation list?

Treasury's proposed list is in REG-110032-25 (90 FR 45340). For 2026, your W-2 or 1099 should show an occupation code. If you're unsure, a tax professional can help.

I'm a self-employed hairstylist. Can I deduct my tips?

You may, if your occupation is on the list and the other tests are met. Your deduction is limited to the net profit of your business, and self-employment tax still applies.

Do pooled tips count?

For employees, yes, if the other tests are met. The statute (IRC §224(d)(3)) includes tips received under a tip-sharing arrangement.

Sources

IRC §224, qualified tips: https://www.law.cornell.edu/uscode/text/26/224
IRS Notice 2025-69 (tips methods, occupation list reliance, SSTB transition): https://www.irs.gov/pub/irs-drop/n-25-69.pdf
IRC §199A (SSTB definition): https://www.law.cornell.edu/uscode/text/26/199A
IRC §24 (SSN definition in §24(h)(7)): https://www.law.cornell.edu/uscode/text/26/24
2025 Schedule 1-A (Form 1040): https://www.irs.gov/pub/irs-pdf/f1040s1a.pdf
IRS Publication 15 (2026): https://www.irs.gov/pub/irs-pdf/p15.pdf
Instructions for Forms 1099-MISC and 1099-NEC: https://www.irs.gov/pub/irs-pdf/i1099mec.pdf

This guide provides general information for educational purposes and is not tax, legal or accounting advice. Consult a qualified professional before acting.