2025 Tip Income Deduction
Beginning with tax year 2025 through 2028, there is a new temporary deduction up to $25,000 for cash or charged tips paid voluntarily and non-negotiable by a customer to an individual in an occupation which customarily and regularly receives tips. The tips must be reported on Form W-2, Form 1099, and/or Form 4137. The IRS will provide transition relief for tax year 2025 for individuals claiming the deduction and for employers and payors subject to the new reporting requirements.
This deduction amount gets reduced once modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 if married filing jointly). The tip deduction will be reduced by $100 for each $1,000 MAGI exceeds the amounts shown above.
The IRS has provided a
preliminary list of
qualifying tipped
occupations
. It can be claimed whether itemizing
deductions or using the standard deduction.
For tax year 2025, individuals cannot claim the tip deduction if they are considered highly compensated employees or have earned income exceeding $160,000.
A valid work-eligible Social Security number is required to claim this deduction. If married filing jointly, both spouses must have valid work-eligible Social Security numbers.
NOTE: If an individual is using the "Married Filing Separately" filing status, this deduction CANNOT be claimed.
