💸 Tip Deduction Update · 2025–2028

“No Tax on Tips” – New 2025 Rules You Need to Know

Treasury & IRS guidance for workers who receive tips under the One, Big, Beautiful Bill.

✅ Who Qualifies & How Much Can You Deduct?

• Applies to tax years 2025 through 2028.

• For tipped workers, the maximum annual deduction is $25,000.

• Deduction phases out when modified AGI is over $150,000 (single, HOH, etc.) or $300,000 (married filing jointly).

• You can use reported tips from Forms W-2, 1099, 4137, or your own detailed tip logs, depending on your situation.

Tip: Keep solid records (daily tip logs, copies of pay stubs, Forms W-2/1099, Form 4137) so your deduction is fully documented.

💡 Real-Life Tip Scenarios

Below are simplified examples from the IRS guidance. Each scenario is numbered so you can quickly match them to your own situation.

1

🍽️ Scenario 1 – Waiter with Tips Reported on Form W-2

Ann is a restaurant server. Her 2025 Form W-2 shows:

• $18,000 of Social Security tips in box 7.

• No additional tips reported on Form 4137.

For 2025, Ann may use $18,000 as her qualified tips amount when calculating her tip deduction (subject to the overall $25,000 limit and income phase-outs).

2

🍹 Scenario 2 – Bartender with Extra Tips on Form 4137

Bob is a bartender in 2025. Here’s what his records show:

• He reports $20,000 in tips to his employer on Forms 4070.

• His Form W-2 shows $15,000 in tips in box 7.

• He also reports $4,000 of additional unreported tips on Form 4137, line 4.

For 2025, Bob may:

• Use either the $15,000 from box 7 of Form W-2, or

• Use the $20,000 in tips reported to his employer on Forms 4070.

Plus, Bob may also include the additional $4,000 of tips from Form 4137, line 4, when determining his total qualified tips for the deduction (subject to the $25,000 and income limits).

3

🌍 Scenario 3 – Self-Employed Travel Guide Using Tip Logs

Doug is a self-employed travel guide (sole proprietor). In 2025:

• He receives $7,000 in tips from customers via a third-party settlement organization (TPSO).

• His Form 1099-K from the TPSO shows $55,000 total payments but does not separately identify tips.

• Doug keeps a daily tip log showing date, customer, and tip amount.

Because Doug’s records clearly substantiate the $7,000 tip amount, he may use $7,000 as his qualified tips total for 2025 when calculating the deduction (subject to the $25,000 and income limits).

This summary is for general educational purposes only and is based on IRS Notice 2025-69 and related guidance. Always review the official IRS instructions or speak with YOUR qualified PAYROL professional for advice on your specific situation.