The tips deduction (section 224) is narrower than its nickname. It covers qualified tips received in specific occupations, up to $25,000 per return, for tax years 2025 to 2028. Four tests decide whether your tips count.
Test 1: your occupation must be listed
The occupation must be one that customarily and regularly received tips on or before December 31, 2024. The IRS list is fixed: 71 occupations in 8 categories, from bartenders and servers to home-service and delivery workers, each with a Treasury Tipped Occupation Code. When you started the job does not matter; the occupation’s history does. Use the occupation checker or browse the full list.
Test 2: the payment must be a real tip
A qualified tip is paid voluntarily, in an amount the customer decides, without negotiation. Cash counts, and so do tips charged on a card. Mandatory service charges do not count, and neither do tips for illegal activity. The edge cases are in what counts as a qualified tip.
Test 3: the tips must be reported
Tips are claimed from the forms that report them: W-2 box 7 or Form 4137 for employees, and for tips in your own trade or business, 1099-NEC box 1, 1099-MISC box 3 or 1099-K box 1a, capped at the business’s net profit. From 2026, W-2s also carry qualified tips in Box 12 code TP and your occupation code in Box 14b.
Test 4: filing rules
You need a Social Security number, and if you are married you must file jointly: married filing separately cannot claim the deduction. One honest complication: tips received in a specified service trade or business (fields like law, medicine and consulting) are excluded by the statute, but the IRS announced in Notice 2025-69 that it will not enforce that exclusion for workers in listed occupations until final SSTB regulations take effect, so listed-occupation workers can claim during the relief period.
The numbers
Cap $25,000 per return, even if both spouses earn tips. Phase-out: $100 off for every full $1,000 of MAGI over $150,000 ($300,000 joint), gone entirely at $400,000 ($550,000 joint) for someone at the cap. Run your own figure in the tips calculator.
For the side-by-side table of every cap and threshold, see the caps and phase-outs reference.