Overview
- Treasury and the IRS issued final guidance ahead of the April 15 tax deadline that names eight occupation groups and more than 70 jobs, a universe that covers roughly 6 million taxpayers who report tips.
- Only voluntary tips paid in cash or by card that workers get directly or through tip pools qualify, excluding automatic service charges and manager-run pools.
- Workers can deduct up to $25,000 per taxpayer, with a phaseout starting at $150,000 for single filers and $300,000 for joint filers.
- To claim the break, report total wages and tips on Form 1040 line 1a and list qualified tips on Schedule 1-A, which you can take whether you itemize or use the standard deduction.
- The deduction does not cut payroll taxes or most state taxes on tips, as shown by Illinois keeping tips taxable and Indiana changing course starting with 2026.