Part II

No Tax on Tips

In general, tips received as an employee or from self-employment must be included in your gross income and are subject to income tax and social security and Medicare tax.

If you received cash and charge tips of $20 or more in a calendar month and didn’t report all of those tips to your employer, you must file Form 4137. You must also file Form 4137 if your Form(s) W-2, box 8, shows allocated tips that you must report as income.

If you have net earnings from self-employment, use Schedule SE to figure the tax due on net earnings from self-employment.

You may be able to claim a deduction for qualified tips paid to you in 2025 that are included on Form W-2, Form 1099-NEC, Form 1099-MISC, Form 1099-K, or reported directly by you on Form 4137.

You can claim this deduction whether you claim the standard deduction or itemize deductions on Schedule A or Schedule A (Form 1040-NR).

For tax year 2025, Form W-2,

! Form 1099-NEC, Form CAUTION 1099-MISC, and Form 1099-K

were not updated to separately identify tips that may qualify for this deduction. See Determining the amount of qualified tips received by employees and Determining the amount of qualified tips received by non-employees , later. Also, see the instructions for lines 4a and 5 for more information about how to iden- tify the qualified tips included in the amounts reported on these forms.

Fill out Schedule 1-A, Part II, only if:

• ^{You (and/or your spouse if filing a} joint return) received qualified tips in

• ^{You have a valid social security} number (SSN). If you are married filing a joint return, the spouse who received the qualified tips must have a valid SSN. Maximum amount of deduction. You can’t deduct more than $25,000 of qualified tips, regardless of your filing status. If you are self-employed, your tips from your trade or business are taken into account in figuring the deduction only to the extent you had net income. Your net income is the gross income from the trade or business in which the qualified tips were received less the amount of the total deductions (other than the deduction for qualified tips) allocable to that trade or business. See Net income limita- tion , later.

If you are married and filing a

TIP joint return, and both you and

your spouse have qualified tip income, the $25,000 maximum amount of deduction limit applies to your com- bined qualified tip income. It is not a per spouse limit.

The deduction amount (after applying the $25,000 deduction limit) is reduced if your MAGI is more than the amount shown next for your filing status.

• ^{Married filing jointly—$300,000.}

• ^{Single, Head of household, or} Qualifying surviving spouse—$150,000.

Your MAGI is the amount on line 3 in Part I of Schedule 1-A.

Qualified Tips

Qualified tips are tips that you received from customers or, as an employee, through a tip-sharing arrangement in an occupation that customarily and regularly received tips on or before December 31, 2024. See Occupations that custom- arily and regularly received tips on or before December 31, 2024, later. Qualified tips are tips that are:

• ^{Cash tips,}

• ^{Paid voluntarily,}

• ^{Not the subject of negotiation, and}

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! CAUTION

If you are married, you must file a joint return with your spouse to claim this deduction.

• ^{Determined by the customer/payor.}

Cash tips. Cash tips are tips received from customers or, in the case of an employee, through a mandatory or voluntary tip-sharing arrangement, such as a tip pool, that are paid in a cash medium, including by cash, check, credit card, debit card, gift card, tangible or intangible tokens that are readily exchangeable for a fixed amount (for example, casino chips), and any other form of electronic settlement or mobile payment app that is denominated in cash. Tips are the excess amount paid by a customer for services over the amount agreed to or otherwise reasonably expected to have been paid for the services in an arm’s-length transaction.

Cash tips don’t include items paid in any medium other than cash. For example, cash tips don’t include:

• ^{Event tickets,}

• ^Meals,

• ^{Services, or}

• ^{Other assets that aren’t exchangea-} ble for a fixed amount of cash.

TRDA and GITCA programs. Tips reported pursuant to a Tipped Employee Participation Agreement as part of the Tip Rate Determination Agreement (TRDA) program or a Model Gaming Employee Tip Reporting Agreement as part of the Gaming Industry Tip Compliance Agreement (GITCA) program are considered qualified tips as long as the participating employee is otherwise eligible for the deduction for qualified tips and reports tips using the tip rates established under their agreement. An employee participating in a TRDA or GITCA program may report any additional qualified tips on Form 4137.

Paid voluntarily, not subject to nego- tiation, and determined by the cus- tomer/payor. Amounts are qualified tips only if they are paid voluntarily and without any consequence in the event of nonpayment. Qualified tips do not include service charges, automatic gratuities, or any other mandatory amounts automatically added to a customer’s bill by the vendor or the establishment, unless the customer is expressly provided an option to disregard or modify such charges, gratuities, and amounts without consequence.

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Example 1. You work on the wait staff at a restaurant. You serve a table with a group of six people. The restaurant has an automatic 18% charge added to a bill of any party of six or more people. The bill includes the 18% automatic gratuity on the “tip line,” and the total bill includes this amount. Even though the restaurant distributed the amount to you and bussers, because the customer did not determine the amount of the additional charge and was not given an express option to ignore or change the amount, the 18% charge is not a qualified tip and may not be deducted.

Example 2. You work on the wait staff at a restaurant. When you give customers the bill, you present the customer an electronic handheld point-of-sale (POS) device. Besides the charges for the meal and sales tax, the POS device also prompts the customer to leave a tip, giving the option of 15%, 18%, 20%, other, and no tip. The customer selects 18% and pays the total with a credit card. Because the customer had the right to determine the tip amount, including the option to leave no tip, the 18% is a qualified tip.

Amounts received that are not quali- fied tips. The following are examples of amounts that are not qualified tips.

• ^{If your employer is in a specified} service trade or business (SSTB), tips received as an employee of that employer are not qualified tips. If you are self-employed in an SSTB, tips received in the course of that trade or business are not qualified tips. If you received tips in the course of another trade or business that is not an SSTB, those tips may be qualified tips if they meet the other requirements. For more information on SSTBs, see the instructions for Form 8995-A. Until the issuance of final regu-

TIP lations determining whether a

trade or business is an SSTB for purposes of this deduction, and for taxable years beginning before the date the final regulations are published, the IRS will treat employees and self-em- ployed individuals as having received tips in the course of a trade or business that is not an SSTB if the employee is in an occupation that customarily and reg- ularly received tips on or before Decem-

ber 31, 2024. For more information on the transition relief, see Notice 2025-69.

• ^{Tips received while performing a} service that is a felony or misdemeanor under applicable law are not qualified tips. However, tips you received for a service that is legal but were received while working for an establishment that violates applicable law in other respects may be qualified tips.

• ^{Amounts received for prostitution} and pornographic activity are not qualified tips.

Example 1. You are an employee who works as a bartender but don’t have a license that is required by the state to serve alcohol. State law provides that serving alcohol without a license is a misdemeanor. You received $10,000 in tips during 2025 while serving alcohol at the bar. “Bartender” is on the list of occupations that customarily and regularly received tips. However, because you served alcohol in violation of applicable state law, the $10,000 in tips that you received in 2025 are not qualified tips and may not be deducted.

Example 2. You are an employee who works as a server at a restaurant that has a bar that serves alcohol. The restaurant doesn’t have a liquor license required by state law. You received $10,000 in tips in 2025 waiting tables at the restaurant. “Wait Staff” is on the list of occupations that customarily and regularly received tips. Even though the restaurant is in violation of applicable state law by not having a liquor license, because working as a server is legal under state law, the $10,000 in tips you received in 2025 are qualified tips and qualify for the deduction.

Occupations that customarily and regularly received tips on or before December 31, 2024. In order for a tip to be a qualified tip, it must have been paid to you while you were working in an occupation that customarily and regularly received tips on or before December 31, 2024. The list of occupations that customarily and regularly received tips on or before December 31, 2024, provides for each occupation a numeric Treasury Tipped Occupation Code (TTOC), an occupation title, a description of the types of services performed by individuals working in the

occupation, illustrative examples of specific occupations that would be included, and the Standard Occupation Classification (SOC) system code(s) that related to the occupation.

The full list of occupations, including the TTOC, occupation title, occupation description, illustrative examples, and SOC code(s) can be found at IRS.gov/ TippedOccupations .

Examples of occupations that customarily and regularly received tips on or before December 31, 2024, as well as the occupation title and TTOC, are listed next.

• ^{Beverage and food service: bar-} tenders (101); wait staff (102); chefs and cooks (105); dishwashers (108); host staff, restaurant, lounge, and coffee shop (109); and bakers (110).

• ^{Entertainment and events: gam-} bling dealers (201), dancers (205), musicians and singers (206), and digital content creators (209).

• ^{Hospitality and guest services:} baggage porters and bellhops (301), concierges (302), and maids and housekeeping cleaners (304).

• ^{Home services: home mainte-} nance and repair workers (401), home landscaping workers and groundskeeping workers (402), home cleaning service workers (407), locksmiths (408), and roadside assistance workers (409).

• ^{Personal services: personal care} and service workers (501), private event planners (502), private event and portrait photographers (503), pet caretakers (506), tutors (507), and nannies and babysitters (508).

• ^{Personal appearance and well-} ness: massage therapists (602); barbers, hairdressers, hairstylists, and cosmetologists (603); exercise trainers and group fitness instructors (608); and tattoo artists and piercers (609).

• ^{Recreation and instruction: golf} caddies (701), tour guides (704), and sports and recreation instructors (706).

• ^{Transportation} and delivery: parking and valet attendants (801), taxi and rideshare drivers and chauffeurs (802), goods delivery people (804), and home movers (809).

Determining the amount of qualified tips received by an employee for 2025. Because no changes have been made to Form W-2 for 2025, a separate account

ing for cash tips you report to your employer may not appear on your Form W-2 for 2025. For 2026, Form W-2 will be updated to provide for a separate accounting for cash tips you report to your employer.

If you received tips as an employee in more than one occupation for the same employer, only those tips that were received in an occupation on the list of occupations that customarily and regularly received tips on or before December 31, 2024, are considered qualified tips. Do not include tips received in occupations that are not included on this list in line 4a, 4b, or 4c.

In order to determine the qualified tips you received as an employee for 2025, you can figure your qualified tips using one of the methods described in paragraphs 1 through 4.

1. You can use the amount reported to you on your Form W-2 in box 7. Enter this amount on line 4a. If you had more than one employer, see the instructions for line 4c and enter this amount in column 1(b) of the Qualified Tips From More Than One Employer Worksheet.

2. You can use the total amount of tips reported to your employer on all your Forms 4070 or any similar form used to report your tips monthly to your employer. This amount may be more accurate if the amount in box 1 or box 5 is more than $176,100. Enter this amount on line 4a. If you received tips as an employee from more than one employer, see the instructions for line 4c and enter this amount in column 1(b) of the Qualified Tips From More Than One Employer Worksheet.

If you are a railroad employee

TIP who received tips in your RRTA

compensation, the tips you re- port to your employer should be repor- ted to you on your Form W-2, box 14.

3. If your employer voluntarily chooses to report the amount of your tips in box 14 of your Form W-2 (or on a separate statement), you can use the amount reported to you.

4. If you are submitting Form 4137, you can use the amount of qualified tips included for the employer in column 1(c) of Form 4137 to enter on line 4b. If you received tips as an employee from more than one employer, see the instruc

tions for line 4c and use this amount to enter in column 1(c) of the Qualified Tips From More Than One Employer Worksheet.

Example 1. You are a restaurant server and have only one employer. Your Form W-2, box 7, is $18,000. You have no unreported tips. You can use the $18,000 in box 7 to figure the deduction for qualified tips. You enter $18,000 on Schedule 1-A, lines 4a and 4c.

Example 2. You are a bartender and have only one employer. Your 2025 Form W-2 shows $200,000 in box 1 and $15,000 in box 7. You report $20,000 of tips on Form 4070 and report $4,000 of unreported tips on Form 4137, line 4. You can use the $4,000 reported on Form 4137 plus either the $15,000 from box 7 of your Form W-2 or the $20,000 of tips reported on Form 4070 to figure the deduction for qualified tips.

Determining the amount of qualified tips received by a non-employee for 2025. Because no changes have been made to Form 1099-NEC, Form 1099-MISC, or Form 1099-K for 2025, a separate accounting for cash tips received by you as a non-employee won’t appear on these Forms. For 2025, the separate accounting requirement is treated as satisfied if your qualified tips are included in the total amount of compensation, income, or payments reported to you on one or more of these Forms. For 2026, these Forms will be updated to provide for a separate accounting for cash tips received by you as a non-employee.

Base your determination of the amount of your qualified tips on documentation such as receipts, point-of-sale system reports, daily tip logs, third party settlement organization records, or other documents that show that the amount you reported as qualified tips is the correct amount.

Make sure to keep a record of the documents you use when determining the amount of your qualified tips.

Example 1. You are a rideshare driver and receive a Form 1099-K from the rideshare company that includes tips in the total amount of compensation, income, or payments. The rideshare company reports separately in your earnings statement on its rideshare app or website

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Qualified Tips From More Than One Employer Worksheet — Keep for Your Records

the fares you earned and tips you received during the year. In order to figure the amount of your qualified tips for 2025, you can use the amount designated as tips by the rideshare company in your earnings statement on the rideshare app or website.

Example 2. You are a self-employed travel guide who operates as a sole proprietor. In 2025, you received cash tips from customers in connection with guided tours. These tips are voluntarily paid by customers in addition to the stated price of the tour. During 2025, you receive a Form 1099-K from the online booking platform customers use to book the guided tours. The Form 1099-K shows $55,000 of total payments, of which $7,000 is customer tips. The Form 1099-K doesn’t separately identify the tips, but you keep a log of each tour that shows the date, customer, and tip amount. Because you have daily tip logs substantiating the $7,000 tip amount, you can use the $7,000 tip amount to figure your deduction for qualified tips. You enter $7,000 on Schedule 1-A, line 5.

Only amounts that appear in

TIP the aggregate on Forms 1099

can be considered qualified tips. Any “cash tips” received by the tour guide in actual cash that don’t ap- pear on Form 1099-K cannot be inclu- ded in the deduction.

If you received qualified tips in the course of more than one trade or business, see the instructions for line 5 and the Multiple Trades or Businesses Worksheet.

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Valid SSN for No Tax on Tips. You and/or your spouse who received qualified tips must have a valid social security number to claim the deduction for qualified tips. A valid SSN for purposes of the deduction for qualified tips is one that is valid for employment and that is issued by the Social Security Administration (SSA) before the due date of your 2025 return (including extensions). If you were a U.S. citizen when you received your SSN, the SSN is valid for employment. If “Not Valid for Employment” is printed on your social security card and your immigration status has changed so that you are now a U.S. citizen or permanent resident, ask the SSA for a new social security card without the legend. However, if “Valid for Work Only with DHS Authorization” is printed on your social security card, your SSN is valid only as long as the DHS authorization is valid. Line 4a. See Determining the amount of qualified tips received by an employee for 2025, earlier, for the amount to enter on this line. If you received qualified tips as an employee with respect to employment with more than one employer, enter -0- on line 4a and see the instructions for line 4c. Line 4b. Enter the qualified tips included on Form 4137, line 1, row A, column (c). If you have multiple jobs for which you filed a Form 4137, see the instructions for line 4c and the Qualified Tips From More Than One Employer Worksheet. Line 4c. If you and/or your spouse received qualified tips as employees with respect to employment with more than one employer, complete the Qualified

Tips From More Than One Employer Worksheet. Line 5. Include the qualified tips you and/or your spouse received in the course of a trade or business, but only to the extent the trade or business in which you received the qualified tips has net income. See Net income limitation, later. If you and/or your spouse received qualified tips in the course of more than one trade or business, complete the Multiple Trades or Businesses Worksheet. If you and/or your spouse received more than three Forms 1099-NEC, 1099-MISC, or 1099-K, then complete as many copies of the worksheet as needed and include the total for all worksheets in column (i) on the row for the business in which you received the Forms 1099.

Net income limitation. Qualified tips from a trade or business can’t be more than the gross income from the trade or business in which the qualified tips were received minus the total of all deductions allocable to that trade or business, including the deductible part of self-employment tax; the deduction for contributions to self-employed SEP, SIMPLE, and qualified plans; and the self-employed health insurance deduction, but not including the deduction for qualified tips. After you determine the other deductions that apply to the trade or business in which you earned qualified tips, reduce the net profit (Schedule C, line 31; the total of Schedule E, line 28(g) through 28(k); or Schedule F, line 34) by the amount of these deductions. Do not reduce it below zero. The net income limitation applies to each separate trade or business in which you

Multiple Trades or Businesses Worksheet — Keep for Your Records

received qualified tips. If you have more than one trade or business in which you received qualified tips, you should allocate the deductions in a reasonable manner.

For example, a sole proprietor who only has one business and received qualified tips in the business, reports deductions allocable to the business on Schedule C, as well as the deduction for self-employment tax on Schedule 1, line 15. The net income limitation will be the net profit shown on the Schedule C for the business, less the amount from Schedule 1, line 15. The sole proprietor would include on line 5 of Schedule 1-A the lesser of (i) the qualified tips received in the business, or (ii) the net profit for the business less the amount from Schedule 1, line 15. If the business shows a net loss on Schedule C, then the sole proprietor would not include any qualified tips received in the business on line 5 of Schedule 1-A.

Example 1. You have a business tutoring for local schools as an independent contractor. You operate your business as a sole proprietorship. During 2025, you received $500 in qualified tips from students that were reported to you by the schools on Forms 1099-NEC

and reported separately in earnings statements provided by the schools. Your gross income from the business for 2025 was $5,000 and your deductible expenses from the business are $500. Your net income limitation from your tutoring business is $4,500. On Schedule 1-A, line 5, you enter $500. You can take the full amount of qualified tips from the business into account when figuring your deduction because the net income from that business was more than the amount of qualified tips from the business.

Example 2. You are a rideshare driver who operates as a sole proprietor. During 2025, you received $1,800 in qualified tips from customers that were reported to you on Form 1099-NEC and reported separately in your earnings statement provided on the rideshare company’s app. Your gross income from the business for 2025 was $15,000 and your deductible expenses from the business were $14,000. Your net income limitation for this business is $1,000. You enter $1,000 of qualified tips on Schedule 1-A, line 5. Do not enter the remaining $800 of qualified tips. This portion of your qualified tips from the business can’t be taken into account in

figuring your deduction because it is more than your net income limitation from the business.

Example 3. The facts are the same as in Example 1 and Example 2, except that you own and operate both businesses. You enter $1,500 of qualified tips on Schedule 1-A, line 5. This includes $500 from the tutoring business because the net income from that business was more than the amount of qualified tips received in the course of that business. It also includes $1,000 in qualified tips from your rideshare business. It does not include the remaining $800 of qualified tips from your rideshare business because the qualified tips received in the course of the rideshare business are more than the net income from that business by that amount. Line 10. If the amount on line 10 is zero or less, your deduction for your qualified tips is not reduced. Skip lines 11 and 12 and enter the amount from Schedule 1-A, line 7, on Schedule 1-A, line 13.

For more information on the TIP qualified tips deduction, see Notice 2025-69.

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hours in the workweek. Extra pay for certain weekends or holidays is generally not qualified overtime compensation if the employee doesn’t work more than 40 hours in the workweek.

• ^{Qualified tips. Qualified overtime} compensation doesn’t include any amount you receive as a qualified tip.

• ^Coverage under state rules. Some FLSA-ineligible employees are eligible for overtime under state law or are paid premium rates for certain work for other reasons. Overtime pay that is paid to these FLSA-ineligible employees is not qualified overtime compensation and these amounts can't be included when figuring the deduction for qualified overtime compensation.