The one-paragraph version
For tax years 2025 through 2028, workers in a Treasury-listed tipped occupation can deduct their qualified tips — up to $25,000 per tax return — from their federal taxable income, even if they take the standard deduction. The deduction shrinks by $100 for every $1,000 of income above $150,000 (single) or $300,000 (joint), and disappears entirely for married-filing-separately filers. It reduces federal income tax only: Social Security and Medicare taxes still come out of tips, and most states still tax them.
What counts as a "qualified tip"
- Counts: voluntary tips from customers — cash, card, check, gift card — where the customer decides the amount, plus tips you receive through tip pools or tip-sharing (voluntary or mandatory).
- Doesn't count: mandatory service charges and auto-gratuities the guest can't change (those are wages), tips settled in cryptocurrency or other digital assets, and tips earned outside a listed occupation. Tip-outs you pay to others reduce your number; recipients count them on their side.
The three traps people miss
- The cap is per return. A married couple who both earn tips shares one $25,000 cap — it doesn't double. Married filing separately gets nothing at all.
- "No tax" doesn't mean no tax. FICA (7.65%) still applies to every tipped dollar — and that's not all bad, since those dollars keep building your Social Security record. Your paycheck won't change either; the benefit arrives as a bigger refund at filing.
- Reported tips are what count. The deduction rides on tips reported to your employer (or on Form 4137). Under-the-table tips that never hit a W-2 or 4137 don't qualify — which turns honest reporting into a money-maker for the first time.
The $20/month rule you already had
Since long before this deduction, IRC §6053(a) has required employees to report tips of $20 or more in a month, per employer, by the 10th of the following month. The IRS retired its paper diary form (Form 4070A), but the duty — and the daily-record habit behind it — is unchanged, and it's exactly the substantiation the new deduction leans on.
Quick answers
| Question | Answer |
|---|---|
| Which years? | Tax years 2025–2028 (unless Congress extends it) |
| How much? | Qualified tips up to $25,000 per return |
| Income limit? | Phases out above $150K single / $300K joint MAGI; gone by $400K/$550K at the full cap |
| Standard deduction? | Yes — you get both; no itemizing needed |
| Gig workers? | Listed delivery/driver occupations qualify; self-employed deductions are capped at the business's net profit |
| State taxes? | Mostly unchanged — most states still tax tips |
Estimate yours
Run your numbers in the free calculator, check your job on the occupation list — and if you want the whole thing tracked shift by shift with IRS-ready records, that's what TipTotal for iPhone is for.