July 4, 2025 - “No Tax on Tips” Deduction Under OBBBA (2025–2028)

The One Big Beautiful Bill Act (OBBBA) introduces a new tax break for workers who earn tips, beginning in the 2025 tax year. This allows eligible employees and self-employed individuals to reduce their taxable income by deducting qualifying tip income.

What the Deduction Is

• Workers can deduct up to $25,000 in qualified tips per year
• Applies to cash or card tips that are voluntarily given by customers
• Must be earned in jobs where tipping is common and recognized by the IRS 
• Available for 2025 through 2028
• Can be claimed whether you itemize or take the standard deduction

Income Limits

• Deduction begins to phase out if income exceeds: 
  • $150,000 (single)
  • $300,000 (married filing jointly) 

Who Qualifies

• Must have a valid Social Security number
• Must receive tips that are reported on Forms W-2, 1099, or Form 4137
• Available to both employees and self-employed workers

Who Does NOT Qualify

• Workers in a Specified Service Trade or Business (SSTB) (IRC § 199A), such as certain professional services
• Employees working for an employer classified as an SSTB
• Note: SSTBs are any trade or business involving the performance of services in one or more of the following fields:
  • Health
  • Law
  • Accounting
  • Actuarial science
  • Performing arts
  • Consulting
  • Athletics
  • Financial services
  • Brokerage services
  • Investing and investment management
  • Trading
  • Dealing in securities, partnership interests, or commodities
  • Any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners as defined in paragraph (b)(2)(xiv) of IRC § 199A.

How to Claim the Tips Deduction

• The deduction is claimed on Schedule 1-A, which is filed with your regular Form 1040 tax return.

Please see the following link for more information: OBBBA: No Tax on Tips