Deduction for Tips (Up to $25,000)
“Workers in IRS‑recognized tip‑based occupations may deduct up to $25,000 in qualified tips each year.”
This deduction applies to workers in occupations that customarily and regularly receive tips. Tips must be voluntary, paid by customers, and properly reported.
What Counts as Qualified Tips
Voluntary payments from customers
Tips reported on a W‑2, 1099, or Form 4137
Tips received in an IRS‑listed tip‑based occupation
Who Is Not Eligible
Certain workers are excluded, even if they receive payments that feel like tips.
Self‑employed individuals in “specified service” industries, employees whose employer operates in a specified service industry are also excluded. Examples below:
Financial services
Consulting
Law
Accounting
Actuarial science
Athletics
Performing arts
Brokerage services
Any business where the primary asset is the reputation or skill of the owner or employees
Payments that do not qualify as tips, such as mandatory service charges or automatic gratuities, are not eligible.
Official IRS List of Eligible Occupations
The IRS maintains a detailed list of qualifying occupations in its proposed regulations:
https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors
