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By Giulia Carbonaro
Senior Reporter
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The Internal Revenue Service (IRS) published on Monday a new schedule that taxpayers will use to claim a series of deductions introduced by the Donald Trump administration through the One Big Beautiful Bill Act (OBBB), including “No Tax on Tips.”
Why It Matters
Eliminating federal income tax on tips was a key point of Donald Trump’s presidential campaign in 2024, and one that proved very popular among voters—especially those employed in service industries, such as restaurant workers, bartenders, hairdressers, taxi drivers. Despite a hotly divided race, the idea of “No Tax on Tips” had been embraced by Democratic candidate Kamala Harris as well.
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After “No Tax on Tips” was inserted in the OBBB, this filing season will give a chance to “millions of taxpayers” to deduct the tips paid to them in 2025 from their taxes, according to the IRS. But experts are split over the impact it would have on tipped workers. According to the nonpartisan think tank Economic Policy Institute (EPI), many tipped workers earn too little to qualify for the deduction, and lower-income workers benefit the least.
The tip deduction is temporary and only applies for the 2025-to-2028 tax years.
What Is the New Schedule?
Schedule 1-A, available on the IRS website, allows eligible taxpayers to deduct amounts for tips, overtime, and car loans for tax year 2025. Seniors can also use it for the enhanced deduction introduced by the Trump administration.
Part II of the schedule is dedicated to “No Tax on Tips” and that is the only part of the form that qualified tipped workers must fill out. Instructions on how to fill the schedule can be found here.
Who Can Benefit From It?
Both employees and self-employed taxpayers may be able to deduct qualified tips as long as they were received in certain qualified jobs, including waiters/waitresses, bartenders, salon workers, personal trainers, and gig economy workers.
The occupations fall into eight categories, including:
- Beverage and Food Service
- Entertainment and Events
- Hospitality and Guest Services
- Home Services
- Personal Services
- Personal Appearance and Wellness
- Recreation and Instruction
- Transportation and Delivery.
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A list of all qualified occupations can be found here.
Under the IRS definition, qualified tips must be:
- cash tips;
- paid voluntarily by the customer;
- and not subject to negotiation.
Tips received while performing a service that is a felony or misdemeanor do not qualify for the deduction, but tips received while performing a legal service while working for an establishment that violates the law in other respects may be qualified tips.
For example, if an employee working for a restaurant that does not have a license to serve alcohol under state law received $10,000 in tips in 2025 waiting tables at the venue, they would be able to consider these as qualified tips for the deduction.
Tips received for sex work and “pornographic activity” do not qualify for the deduction.
How Much Can Qualified Taxpayers Deduct?
Qualified taxpayers can deduct up to $25,000 per year. Self-employed taxpayers cannot deduct more than their net income, without regard to this deduction, from the trade or business in which the tips were earned.
The deduction phases out—potentially to $0—for taxpayers with modified adjusted gross income over $150,000, or $300,000 for joint filers, according to the IRS.
To claim the deduction, tips must be reported, and married couples must file a joint return.
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