If you earn tips, your next tax season might look a little brighter. Thanks to the One Big Beautiful Bill Act, signed into law in July 2025, a brand-new “No Tax on Tips” deduction is rolling out. It’s the first of its kind—a benefit meant to recognize the millions of Americans whose paychecks rely on gratuities.

This new rule applies to tax years 2025 through 2028, and it could make a meaningful difference in how service-industry professionals report income and save on taxes.

How the Deduction Works

If you’re an employee or self-employed individual who works in a job where tipping is common, you can deduct up to $25,000 per year in qualified tips. The IRS defines these as occupations where tipping was “customary and regular” as of December 31, 2024.

The best part? This deduction is available whether you itemize or take the standard deduction.

What Counts as a “Qualified Tip”?

• Voluntary payments made in cash or by card
• Tips shared through a tip pool
• Payments given freely by customers (not mandatory service charges)

For self-employed individuals, the deduction can’t exceed your net business income before the deduction is applied.

Who Can Claim It and Who Can’t

To qualify, workers need to meet a few requirements:

• Must provide a Social Security number
• Married couples must file jointly (separate filers don’t qualify)
• Certain industries—like health care, athletics, or the performing arts—are excluded
• Employers are required to report tips and occupations annually to the IRS or Social Security Administration
• The maximum deduction is $25,000 per year, no matter your filing status

Income Limits Apply

The deduction starts to phase out for higher earners:

• Single filers with MAGI over $150,000
• Married couples filing jointly with MAGI over $300,000

Once you cross those thresholds, your deduction drops by $100 for every $1,000 in extra income.

Who Qualifies: Industries Where Tips Are Common

In October 2025, the Treasury Department and IRS released a list of industries where tipping was considered “customary and regular” before the cutoff date. Here are some highlights:

Food & Beverage Service
Bartenders, wait staff, baristas, bussers, hosts, bakers

Entertainment & Events
Casino dealers, DJs, musicians, performers, ushers, digital content creators

Hospitality & Guest Services
Bellhops, concierges, hotel clerks, housekeepers

Home Services
Cleaners, electricians, plumbers, landscapers, HVAC techs, locksmiths

Personal Services
Nannies, babysitters, tutors, photographers, event planners, caregivers

Personal Appearance & Wellness
Hairdressers, barbers, massage therapists, nail techs, estheticians, tattoo artists

Recreation & Instruction
Golf caddies, fitness instructors, tour guides, recreational pilots

Transportation & Delivery
Valets, taxi and rideshare drivers, shuttle and delivery workers, car detailers, movers

You can find the full, detailed list on the Federal Register website.

Transition Period: Time to Adjust

The IRS knows this is new territory. For tax year 2025, they’re offering transition relief, meaning extra time and guidance for both workers and employers to get used to the new reporting and compliance requirements.

Why It Matters

For many service professionals, this deduction could offer real relief. Workers in up to 68 occupations, from baristas to bellhops, may see lower taxable income and bigger savings come tax time. It’s a step toward recognizing the essential role of tipped workers in the U.S. economy and giving them a fairer shake at tax time.

Disclaimer: Mirus Financial Partners does not provide tax or legal advice. Please consult a qualified tax professional or attorney regarding your specific situation.