New Tips Deduction Explained

Workers in up to 68 occupations will be able to use the tip deduction.

A new deduction for tips is effective for tax years 2025 through 2028.

Here is a summary of the new provision.

Some employees and self-employed individuals may deduct up to $25,000 per year of qualified tips.

Eligible taxpayers are those that work in an occupation that is one viewed as "customarily and regularly" receiving tips. There is no requirement to itemize deductions in order to use the tip deduction.

Qualified tips include voluntary cash or card payments and tips given through tip sharing.

Tips must be voluntary, automatic gratuities and mandatory service charges are not included. For self-employed taxpayers, the deduction cannot be greater than net income from the business in which the tips were earned.

Eligibility details

• Taxpayers claiming the deduction must provide their Social Security number.

• Married couples filing separately are not eligible.

• Workers in excluded fields, such as health, performing arts, or athletics, are ineligible.

• Employers must report tips and occupation details annually to the IRS or Social Security Administration and provide statements to workers.

• The total amount of qualified tips that can be deducted per calendar year is $25,000 regardless of filing status.

Qualifying jobs

Here are the qualifying industries with some of the most common qualifying occupations:

• Beverage and food service: Bartenders, wait staff, baristas, bussers, cooks, dishwashers, hosts, and bakers

• Entertainment and events: Casino dealers, musicians, DJs, performers, ushers, ticket takers, and digital content creators

• Hospitality and guest services: Bellhops, concierges, hotel desk clerks, and housekeepers

• Home services: Cleaners, plumbers, electricians, landscapers, HVAC repair workers, and locksmiths

• Personal services: Nannies, babysitters, tutors, pet sitters, photographers, event planners, and personal caregivers

• Personal appearance and wellness: Hairdressers, barbers, massage therapists, nail technicians, estheticians, and tattoo artists

• Recreation and instruction: Golf caddies, tour guides, fitness instructors, self-enrichment teachers, and recreational pilots

• Transportation and delivery: Valets, taxi/rideshare drivers, shuttle drivers, delivery workers, charter boat staff, car detailers, and home movers

A detailed list of occupations can be found on the website of the Federal Register.

For tax year 2025, the IRS will provide transition relief in the form of additional time for qualified taxpayers and employers to adapt to the new reporting requirements.

To learn more about how this new tax deduction can help you keep more of your hard earned tip income, contact MNM Vested, LLC.