Are Tips Taxable? How the ‘One Big Beautiful Bill Act’ Changed Taxes on Tips

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- Federal: $79 to $139. Free version available for Simple Form 1040 returns only.
- State: $0 to $69 per state.
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How the 'no tax on tips' deduction works
Qualifying tips
- Tips that count include those paid voluntarily by debit or credit card, in cash, or through a tip-sharing program.
- Tips that weren’t properly reported and tracked by employers and mandatory service charges do not count toward the deduction. Service charges include things like bottle service, room service, delivery fees and gratuity automatically added for large parties.
Income limits
- Taxpayers whose modified adjusted gross income is $150,000 or less are eligible for the full deduction. For joint filers, this limit doubles to $300,000.
- The deduction is reduced by $100 for every $1,000 a taxpayer’s income exceeds those limits.
- The deduction is not available for single taxpayers making above $400,000 or joint filers making above $550,000.
Other details of note
- To claim the deduction, you must provide your Social Security number on your tax return.
- You do not have to itemize on your tax return to claim the deduction.
- If you’re married, you must file jointly to take advantage of the deduction. Married people filing separately are not eligible.
- The deduction is valid from 2025 through 2028 only. This year is considered a transition period in which employers may approximate tip income or may be allowed to use partial payroll information if full W‑2 reporting isn't yet standardized.
- The deduction only applies to federal income tax. Social Security and Medicare taxes (FICA) must still be withheld on all tips, qualified or not.
Do you have to report tips?
How to keep track of tips
Report your tips every month
When you file your tax return, report your tips again
Article sources
- 1. Internal Revenue Service. Form 4070A. Accessed Jul 18, 2025.
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