Definition
A deduction of up to $25,000 a year for 2025 through 2028 for tips earned in jobs where tipping is customary.
What it means
Under a 2025 law, workers in occupations that customarily received tips before 2025, such as servers, bartenders and hair stylists, can deduct qualified tips on Schedule 1-A for tax years 2025 through 2028. The deduction is capped at $25,000 per return and is reduced by $100 for each $1,000 of modified AGI above $150,000, or $300,000 for joint filers. It is available whether or not you itemize. Tips must be voluntary and reported, for example on a W-2 or 1099, and the IRS publishes the list of eligible occupations. You need a Social Security number valid for work, and married people must file jointly. The deduction lowers federal income tax only; Social Security and Medicare taxes still apply to tips, and state income tax may too.
Example
A server with $18,000 of reported tips and $50,000 of MAGI in 2026 can deduct the full $18,000; at a 12% marginal rate that lowers federal income tax by about $2,160.
Illustrative numbers only. Your situation will differ.
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