New “No Tax on Tips” Deduction for 2025–2028

Beginning with the 2025 tax year, a new federal tax deduction may benefit tipped workers. The No Tax on Tips deduction allows eligible individuals to deduct up to $25,000 of qualified tips from taxable income. This deduction applies whether a taxpayer itemizes deductions or takes the standard deduction and is available through tax year 2028.

It is important to note that tips are still required to be reported as income. The deduction applies only to qualified tips earned in certain occupations and is subject to income limitations. Not all tipped workers will qualify. Employer documentation is required to support the deduction, making accurate reporting critical when filing your tax return.

Because this deduction is new and IRS guidance may continue to evolve, proper tax planning is essential. Working with a tax professional can help ensure compliance with reporting requirements while maximizing available tax savings.

Source: IRS Schedule 1-A Instructions https://www.irs.gov/instructions/i1040sca