IRC §224 · Qualified tips
No Tax on Tips Deduction
Short answer
For tax years 2025 through 2028, eligible employees and self-employed individuals may deduct up to $25,000 of qualified tips received in an IRS-listed tipped occupation.
The deduction phases out above $150,000 of modified adjusted gross income, or $300,000 for a joint return. It reduces federal taxable income; it does not make tips unreportable or exempt them from payroll taxes.
Key facts
The figures and limits at a glance
Maximum deduction
$25,000
The annual limit applies per return, subject to the other statutory restrictions.
Available years
2025–2028
IRC §224 applies to tax years beginning after 2024 and ends after 2028.
Phaseout begins
$150k / $300k
MAGI threshold for single and other non-joint returns / married filing jointly.
Primary authority
Open the sources behind the answer
IRC §224 — Qualified tips
The controlling Code section for the qualified-tips deduction, including the limit, phaseout, definitions, and termination date.
IRS guidance on the qualified-tips deduction
The IRS summary of eligibility, reporting, filing-status, and income limitations.
IRS list of tipped occupations
The occupation list used to determine whether tips are received in a qualifying occupation.
What “no tax on tips” means
The provision is an income-tax deduction for qualified tips, not an exclusion that removes tips from wages or self-employment income. Tips remain reportable, and payroll-tax rules continue to apply.
- →The deduction is available whether the taxpayer itemizes or claims the standard deduction.
- →Qualified tips generally must be voluntary cash or charged tips, including qualifying tip-sharing amounts.
- →The taxpayer must include a valid Social Security number, and a married taxpayer must file jointly to claim the deduction.
Which tips qualify
IRC §224 focuses on tips received in an occupation that customarily and regularly received tips on or before December 31, 2024. The IRS publishes the occupation list used for this test.
- →The payment must be voluntary, not negotiated, and determined by the customer.
- →Self-employed taxpayers are also subject to a net-income limitation for the business in which the tips were earned.
- →The deduction is reduced by $100 for each $1,000 of MAGI above the applicable threshold.
Questions and answers
What practitioners ask next
Are tips completely tax-free under the new law?
No. IRC §224 creates a federal income-tax deduction for qualified tips. The tips remain reportable income and can remain subject to Social Security, Medicare, and other applicable taxes.
What is the maximum no-tax-on-tips deduction?
The maximum deduction is $25,000 per tax return, before applying the income phaseout and other eligibility limits.
Can self-employed workers claim the deduction?
Yes, when the tips and occupation qualify, but the deduction cannot exceed the individual’s net income from the trade or business in which the tips were earned.
Do I have to itemize to claim it?
No. The qualified-tips deduction is available to eligible taxpayers who itemize and to those who claim the standard deduction.
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