You’ve heard there’s a new federal deduction called No Tax on Tips. You work for tips. The obvious question: do I actually qualify? Most articles burn 600 words before they answer that — written by accountants, for accountants. This one answers it in the first paragraph, then walks you through the catches so you don’t get to April and find out you didn’t.

You qualify for the federal No Tax on Tips deduction if (1) your job is on the IRS list of 70+ tipped occupations, (2) the tips came voluntarily from customers — cash, card, or check, (3) your modified adjusted gross income is under $150,000 single or $300,000 married filing jointly, (4) the tips were earned in tax years 2025 through 2028, and (5) you’re filing a U.S. federal return and not as married filing separately. If you can answer yes to all five, you’re in — up to a $25,000 cap.

The rest of this guide unpacks each of those five, plus the two questions that always come next: how much is it worth, and does your state play along.

The 5-step qualification checklist

  1. Is your occupation on the IRS TTOC list?
  2. Did the tips come voluntarily from customers (cash, card, or check)?
  3. Is your MAGI under $150k single / $300k joint?
  4. Were the tips earned in 2025, 2026, 2027, or 2028?
  5. Are you filing a U.S. federal return (not married filing separately)?

Yes to all five → you qualify, up to $25,000. Any “no” and you’ll want to read the section below that matches.

What “No Tax on Tips” actually is

Quick reset, because the name oversells it: this is a deduction, not an exemption. Your tips aren’t suddenly invisible to the IRS. You still report them. You still file. What changed is that you may now subtract up to $25,000 of qualified tips from your taxable income before the federal tax math runs.

It’s federal income tax only. FICA still applies in full — Social Security at 6.2% and Medicare at 1.45% come out of every tipped dollar exactly like before. State income tax is a separate machine; most states haven’t followed along (more on that below).

The law is §224 of the One Big Beautiful Bill Act (OBBBA), signed July 2025, with the IRS Final Regulations (TD 10044) landing in April 2026. It’s an above-the-line deduction, which means you can take it whether you use the standard deduction or itemize — you don’t have to pick one. And it’s temporary by design: tax years 2025 through 2028 only. Unless Congress extends it, it expires after December 31, 2028.

Which occupations qualify? The IRS TTOC list

The first question gates everything else. The IRS built a list of 70+ Treasury Tipped Occupation Codes (TTOCs) — a fancy name for “jobs the government recognizes as tipped.” If your job isn’t on it, you don’t qualify under §224, full stop.

Here’s the practical version, grouped by category so you can find yourself fast:

That’s the part you probably came here for. The full official list goes deeper — see the complete TTOC occupations list for all 70+ roles grouped by category.

Two important catches before you move on. First, the SSTB exclusion: if you work somewhere that’s mainly a “specified service” business — a law firm, a medical office, an accounting or consulting shop that happens to take tips — you’re generally out, even if your personal role is tipped. Second, you need a valid Social Security number. This deduction is SSN-only. ITIN holders are excluded. And the filing-status trap mentioned above: married filing separately is disqualifying, no exceptions.

Which tips count — and which don’t

This is where most workers leave money on the table. The whole deduction turns on one word: voluntary. The moment a payment stops being voluntary, it stops qualifying.

Tips that qualify:

Tips that do not qualify:

One more wrinkle that trips people up: tip-out reduces your qualified amount; pool you receive adds to it. If you tip out the bar and the busser, that money was never really yours — so it comes off the top. If you receive an allocation from a pool, that’s yours, and it counts.

Income limits and the MAGI phase-out

You qualify on the income side as long as your modified adjusted gross income (MAGI) stays under the threshold:

Above that, the deduction starts shrinking — by roughly $100 for every $1,000 of MAGI over the line — until it phases out entirely. Most tipped workers will never sniff that ceiling. But a top-shelf bartender in a major-city hotspot, or a two-earner household where the non-tipped spouse pulls a high salary, can cross it.

Two quick examples to make the math real:

Maria — full-time server, single filer, MAGI $130,000, $18,000 in qualified tips. She’s under the threshold. She gets the full $18,000 deduction.

Jay — rideshare driver, single filer, MAGI $165,000, $20,000 in qualified tips. He’s $15,000 over the line. His deduction shrinks by roughly $1,500 ($100 per $1,000 over). He ends up with about $18,500 of deduction allowed — and since he only earned $20,000 in qualified tips, the trimmed cap still leaves most of his deduction intact.

The phase-out is gentle, not a cliff. But if you’re in the range, run your number — the difference between “I qualify” and “I half-qualify” is real money.

The estimator

See what your tips may save you.

Three quick questions. No account, no email needed to get your estimate.

Filing status

Try the No Tax on Tips estimator — it takes about twenty seconds.

W-2 employee or 1099 self-employed?

Both can qualify. The mechanics are a little different.

If you’re a W-2 employee

For tax year 2025, your employer is not yet reporting qualified tips on the W-2 — that doesn’t start until 2026 earnings. So your daily log is the substantiation. For 2026 and forward, your employer reports qualified tips in W-2 Box 12 with code “TP,” and your TTOC code in Box 14b. Verify those numbers against your own log — payroll systems make mistakes and you’re the one signing the return. The deduction itself is claimed on Schedule 1-A filed with your Form 1040.

If you’re 1099 / self-employed

Rideshare drivers, delivery drivers, freelance bartenders, mobile estheticians, and other independent tipped workers may qualify — as long as the occupation is on the TTOC list. Two extra rules apply:

  1. Your tip deduction can’t exceed your net self-employment income from that work.
  2. Self-employment tax (15.3%) still applies to the full tip income. The deduction only affects income tax.

Track your tips and your expenses both, because the SE income limit makes your Schedule C a load-bearing document.

Does your state follow the federal rule?

This is the part that surprises people, and you deserve to hear it straight: the federal deduction does nothing for your state taxes unless your state chooses to conform.

Federal income tax and state income tax are run by two different governments. Congress changed the federal one. Your state legislature runs the other one, and most of them haven’t moved.

The 9 states with no state wage income tax at all — so the federal break creates no state gap, because there’s no state tax on the tips to begin with:

AK · FL · NH · NV · SD · TN · TX · WA · WY

If you work in any other state, your tip income may still be fully taxable at the state level — qualified or not. Many states are debating conformity; some have passed it, most haven’t. Check the state-by-state conformity tracker for your specific state. Two things to do about it: don’t assume, and track your tips anyway — federal records still pay off, and if your state catches up later, you’ll already have clean numbers.

When you don’t qualify — the disqualifiers

So you can rule yourself out fast, here are the explicit no-go situations:

If any of these is you, the deduction isn’t yours this year. Track your tips anyway — rules change, and your record-keeping habit is the part that pays off either way.

How to actually claim it

Three steps, none of them hard if you don’t let them pile up.

  1. Track every shift. Date, job (if more than one), cash tips, card tips, and any tip-out paid or pool received. Same night, before you forget. The IRS expects a contemporaneous record — written down when it happened, not reconstructed in April.
  2. Verify your W-2 (2026 onward). Check that Box 12 code TP matches your log. If your employer under-reports, you fix it on your end using your records.
  3. File Schedule 1-A with your Form 1040. It’s the new form the IRS created specifically for this deduction. Above-the-line — you keep your standard deduction either way. Here’s the line-by-line Schedule 1-A walkthrough.

For the 2025 tax year specifically — the orphan year — your own log is the whole substantiation story. Here’s the full how-to-track guide if you want the step-by-step.

The bottom line

The No Tax on Tips deduction is real money if you handle it right, and nothing if you don’t. It rewards exactly one behavior: keeping clean, honest records of your qualified tips. If your job is on the TTOC list, your income is under the threshold, and the tips were voluntary — you’re in.

Three things to do this week:

  1. Confirm your TTOC code. Five minutes.
  2. Run your number in the estimator. Twenty seconds.
  3. Start a daily log today. The hardest shift to remember is the one you didn’t write down.

And the honest caveat: this is a plain-English guide, not tax advice. For edge cases — self-employment math, a phase-out-range income, an SSTB question, or a state that doesn’t conform — a CPA or Enrolled Agent is worth every penny.

Track your 2026 tips. Be ready for tax season 2027.

Qualified Tips is free to log every shift. It knows which tips qualify under the federal deduction — and which don’t.

Download on the App Store Get it on Google Play

Or get notified when it launches.

We'll email you the moment Qualified Tips is live.