Deductions & credits

In order to claim tips, as a self-employed individual, you must have income reported to the IRS on a 1099-K, 1099-NEC or 1099-MISC.  The new law only applies to tips that are reported to the IRS.  If they are not reported to the IRS on a form other than your Schedule C, you cannot claim them.  

This means that if you enter your income as cash or checks and it was not reported on one of the forms to the IRS, you cannot take the deduction. 

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

If you did receive a 1099, that included tips, then you would need to enter it separately from the rest of your income to be able to take the No Tax on Tips deduction.

In order to claim tips, the following must apply:

• The tips MUST be reported.  If they are not reported on a form to the IRS you cannot claim them for the no tax on tips deduction.
  • If employed they need to be reported on your W-2 or form 4137
  • If self-employed, they must be reported on a 1099.  If you received them as cash, they are not deductible. 
• Your income must be below $150,000 if you are single or less than $300,000 if Married Filing Jointly.  Above these amounts, the deduction starts to fade out and is not available at all for those with income over $400,000 for single and $550,000 for Married Filing Jointly.
• You can not claim this deduction if you are Married Filing Separately
• You receive tips from an occupation that normally and customarily receives tips
• Self-employed, deduction may not exceed individual’s net income, without regard to this deduction, from the trade or business in which the tips were earned.