How do I claim the 'no tax on tips' deduction for my 2025 taxes?

The "No Tax on Tips" deduction was created by the One Big Beautiful Bill Act (signed July 4, 2025) and is available for tax year 2025 returns filed in 2026. Here's how to claim it:

Who qualifies:

• Employees and self-employed individuals who received tips in an occupation that customarily and regularly received tips on or before December 31, 2024 (think servers, bartenders, hairdressers, hotel staff, taxi drivers)
• The tips must be reported on Form W-2, Form 1099, or Form 4137
• You must include your Social Security Number on the return
• Married taxpayers must file jointly to claim the deduction

How much can you deduct:

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

Who doesn't qualify:

• Self-employed individuals in a Specified Service Trade or Business (SSTB) under Section 199A are excluded
• Employees whose employer is in an SSTB are also excluded
• Tips received in occupations not on the IRS's approved list don't count as "qualified tips"

How to claim it:

Claim the deduction on the new Schedule 1-A (published March 2026 for the 2025 tax year). Both itemizers and non-itemizers can claim it — it reduces your taxable income regardless of which deduction method you use.

What are "qualified tips":

Voluntary cash or charged tips received from customers or through tip-sharing arrangements. Tips your employer required you to share do not qualify if the arrangement is mandatory.