A federal deduction of up to $25,000 for qualified tips received in a customarily tipped occupation, for tax years 2025 through 2028. It reduces income tax but not Social Security or Medicare tax.
Separate deductions with separate caps ($25,000 for tips, $12,500 or $25,000 joint for overtime) and the same phase-out thresholds. Both are claimed on Schedule 1-A and both expire after 2028.
Tips are still reported as wages and still subject to payroll tax; the deduction comes off on Schedule 1-A. It phases out by $100 for every $1,000 of modified AGI over $150,000 ($300,000 joint), so higher earners get less or nothing.
Yes. The deduction is for income tax only. FICA and self-employment tax on tips are not affected.
Source: IRC 224; IRS Notice 2025-69; Public Law 119-21
Last reviewed September 17, 2026. Tax rules change; confirm current law before acting.
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