Does the new 'no tax on tips' deduction apply to me for 2025?

The 'No Tax on Tips' deduction is one of the most talked-about changes in tax year 2025, created by the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025.

Who qualifies:

• Employees and self-employed individuals who receive tips in occupations that the IRS has listed as "customarily and regularly" receiving tips as of December 31, 2024. Think servers, bartenders, hair stylists, hotel workers, and similar service roles.
• Tips must be reported on a Form W-2, Form 1099, or Form 4137.
• You must include your Social Security Number on your return. Married taxpayers must file jointly to claim it.

How much can you deduct:

• Up to $25,000 per year in qualified tips.
• For self-employed individuals, the deduction cannot exceed your net income from the business where the tips were earned.
• The deduction phases out if your modified adjusted gross income (MAGI) exceeds $150,000 (or $300,000 for married filing jointly).

Important limits:

• Self-employed individuals in a Specified Service Trade or Business (SSTB) under Section 199A are not eligible. Employees whose employer operates an SSTB are also excluded.
• The deduction is available whether you itemize or take the standard deduction.
• This provision is effective for tax years 2025 through 2028 only.

How to claim it:

The IRS is providing transition relief for tax year 2025. Watch for updated IRS guidance and the finalized list of qualifying occupations. The deduction will be reported on your Form 1040.

If you earned significant tip income in 2025 and your MAGI is below the phase-out threshold, this deduction could meaningfully reduce your taxable income.