26 U.S.C. § 224
§ 224. Qualified tips
Explainer
“No tax on tips” — the qualified tips deduction
From 2025 to 2028, tipped workers can deduct up to $25,000 of tips from federal income tax. Payroll taxes and most state taxes still apply.
In plain English
Section 224 was added by the 2025 tax law. It lets people in jobs where tipping is customary deduct up to $25,000 a year of qualified tips. Tips are still income, but the deduction cancels out most or all of the federal income tax on them. You can take it whether or not you itemize.
Despite the slogan, it isn't "no tax". Social Security and Medicare taxes still apply to tips, and so do most state income taxes.
Who it touches
Servers, bartenders, hairstylists, delivery drivers, casino workers and others in occupations the Treasury lists as customarily tipped. Tips must be voluntary and reported, either on a W-2 or 1099 or on Form 4137.
The rules
| Rule | Detail |
|---|---|
| Maximum deduction | $25,000 per return per year |
| Phase-out | −$100 for every $1,000 of modified AGI over $150,000 ($300,000 joint) |
| Years | Tax years 2025 through 2028 only; it ends after that unless Congress extends it |
| Identification | A Social Security number valid for work is required |
| Married | Must file jointly to claim it |
Worked example
Carla is a single server. In 2026 she earns $30,000 in wages and $20,000 in reported tips.
- Without § 224: taxable income $50,000 − $16,100 = $33,900. Income tax $3,820
- With § 224: $33,900 − $20,000 = $13,900. Income tax $1,420
She saves $2,400 in federal income tax. Her Social Security and Medicare tax on the tips, about $1,530, doesn't change.
Watch out for
- Service charges added automatically to a bill (for example "18% for parties of 6+") aren't voluntary tips and don't qualify.
- Workers who already owe little or no income tax gain little from this deduction. Credits like the EITC matter more for them.
Draft explainer. Figures checked against IRS Rev. Proc. 2025-32 and the current text on November 4, 2026. Not yet reviewed by a licensed tax professional.
Sources
The law as written
Current through Public Law 119-102. Amendment notes omitted.
Structure
There shall be allowed as a deduction an amount equal to the qualified tips received during the taxable year that are included on statements furnished to the individual pursuant to section 6041(d)(3), 6041A(e)(3), 6050W(f)(2), or 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor).
The amount allowed as a deduction under this section for any taxable year shall not exceed $25,000.
The amount allowable as a deduction under subsection (a) (after application of paragraph (1)) shall be reduced (but not below zero) by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).
For purposes of this paragraph, the term “modified adjusted gross income” means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.
In the case of qualified tips received by an individual during any taxable year in the course of a trade or business (other than the trade or business of performing services as an employee) of such individual, such qualified tips shall be taken into account under subsection (a) only to the extent that the gross income for the taxpayer from such trade or business for such taxable year (including such qualified tips) exceeds the sum of the deductions (other than the deduction allowed under this section) allocable to the trade or business in which such qualified tips are received by the individual for such taxable year.
For purposes of this section—
The term “qualified tips” means cash tips received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary.
Such term shall not include any amount received by an individual unless—
such amount is paid voluntarily without any consequence in the event of nonpayment, is not the subject of negotiation, and is determined by the payor,
the trade or business in the course of which the individual receives such amount is not a specified service trade or business (as defined in section 199A(d)(2)), and
such other requirements as may be established by the Secretary in regulations or other guidance are satisfied.
For purposes of subparagraph (B), in the case of an individual receiving tips in the trade or business of performing services as an employee, such individual shall be treated as receiving tips in the course of a trade or business which is a specified service trade or business if the trade or business of the employer is a specified service trade or business.
For purposes of paragraph (1), the term “cash tips” includes tips received from customers that are paid in cash or charged and, in the case of an employee, tips received under any tip-sharing arrangement.
No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year such individual’s social security number.
For purposes of paragraph (1), the term “social security number” shall have the meaning given such term in section 24(h)(7).
If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.
The Secretary shall prescribe such regulations or other guidance as may be necessary to prevent reclassification of income as qualified tips, including regulations or other guidance to prevent abuse of the deduction allowed by this section.
No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.