No Tax on Tips Benefits Many Who Receive Gratuities
No tax on tips is part of the new tax laws for those filing in 2026 for tax year 2025. Not every profession that earns tips will get the tax break. But those who do won’t have to pay income tax on the first $25,000 they earn in gratuities. The income deduction is available whether you itemize or use the standard deduction.
Who Is Eligible for No Tax on Tips?
Those whose modified adjusted gross income is less than $150,000 a year ($300,000 for joint filers) are eligible for the tax break. Over those amounts, the deduction begins to phase out. Employers of tipped workers must furnish documentation to the IRS of tip income. Although, many workers may have to rely on their own records to claim the deduction, especially since employers aren’t required to break out tips for tax year 2025.
Qualified tips are voluntary cash or charged tips received from customers or through tip sharing. Mandatory tips, like those automatically added to a bill, are not eligible for the break.
Professions eligible for no tax on tips include:
- Beverage and food service
- Entertainment and events
- Hospitality and guest services
- Home services
- Personal appearance and wellness
- Personal services
- Recreation and instruction
- Transportation and delivery
Professions that are not eligible include workers in in health, performing arts, and athletics. Those are jobs, the government says, to “regularly and customarily receive tips.” Also explicitly prohibited from claiming the deduction are workers who engage in “pornographic activities.” However, the government has not made explicit what those activities are.
Self-employed individuals in a Specified Service Trade or Business (SSTB) under section 199A are not eligible. Employees whose employer is in an SSTB also are not eligible.
The no tax on tips deduction will run through tax year 2028.
Links
This is the IRS notice that offers guidance on the no tax on tips deduction.
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