PaycheckHoursWhat counts
Voluntary cash tips count: cash, card, check, app payments and tip pools, in an occupation on the IRS list. Automatic service charges or mandatory gratuities do not count: an automatic 18% charge for parties of six is not a tip, but 18% chosen on a card reader with a no-tip option can be. Non-cash items such as tickets or meals, and tips for illegal services, do not qualify.
Tips from a specified service trade or business (SSTB) are normally excluded, but IRS transition relief treats listed occupations as not an SSTB during the relief period described in Notice 2025-69.
For 2026 onward, use W-2 box 12 code TP. For 2025, use W-2 box 7, Form 4070 or Form 4137 records. Self-employed workers should use Form 1099-K/NEC with their own tip logs to separate tips from other receipts.
What it does not change
Social Security and Medicare tax still apply. State tax is not modelled. This is not a refund of all tax on tips. You must still report tips to your employer.
Income phase-out examples
These tables assume qualified tips reach the shared cap. Smaller tip amounts phase out sooner. Only full MAGI steps count.
Single
| MAGI | Tips deduction |
|---|---|
| $150,000.00 | $25,000.00 |
| $175,000.00 | $22,500.00 |
| $200,000.00 | $20,000.00 |
| $225,000.00 | $17,500.00 |
| $250,000.00 | $15,000.00 |
| $275,000.00 | $12,500.00 |
| $300,000.00 | $10,000.00 |
| $325,000.00 | $7,500.00 |
| $350,000.00 | $5,000.00 |
| $375,000.00 | $2,500.00 |
| $400,000.00 | $0.00 |
Married filing jointly
| MAGI | Tips deduction |
|---|---|
| $300,000.00 | $25,000.00 |
| $325,000.00 | $22,500.00 |
| $350,000.00 | $20,000.00 |
| $375,000.00 | $17,500.00 |
| $400,000.00 | $15,000.00 |
| $425,000.00 | $12,500.00 |
| $450,000.00 | $10,000.00 |
| $475,000.00 | $7,500.00 |
| $500,000.00 | $5,000.00 |
| $525,000.00 | $2,500.00 |
| $550,000.00 | $0.00 |
Yearly tips, deduction and estimated savings
Single filer below the MAGI threshold. Savings use the selected reference rates; actual savings depend on your taxable income.
| Yearly qualified tips | Tips deduction | Estimated savings at 12% | Estimated savings at 22% |
|---|---|---|---|
| $5,000.00 | $5,000.00 | $600.00 | $1,100.00 |
| $10,000.00 | $10,000.00 | $1,200.00 | $2,200.00 |
| $15,000.00 | $15,000.00 | $1,800.00 | $3,300.00 |
| $20,000.00 | $20,000.00 | $2,400.00 | $4,400.00 |
| $25,000.00 | $25,000.00 | $3,000.00 | $5,500.00 |
| $30,000.00 | $25,000.00 | $3,000.00 | $5,500.00 |