New TIP Deduction - Self Employed No 1099's

[swick]

HELP! I am a sole proprietor. I have a mobile dog grooming business. My clients are individuals so I do not receive 1099's. Fees are mostly paid via Venmo or Zelle (some pay in cash). I received over $13K in tips in 2025. According to the IRS Publication 69 (list of eligible industries/professions), I would be eligible for the deduction.  However, in TT, under the 'Summary of tips', it says none of the tips qualify for the deduction because they were not reported on 1099's. In my research, I did not see anything saying income had to be REPORTED on a 1099 or W-2 to be eligible for the deduction. If this is the case, is would exclude a very large population of workers (independent hair stylists, massage therapists, nail salons, etc). Can this be correct or is there another way to input tip income in TT?

Thank you!

[ThomasM125]

It is possible that you may be able to deduct your tips even if not reported on a 1099 form. It states in the program that they are not deductible as of now, but that may change in the future. 

It would be wise to hold off on filing your tax return until further updates are made to the program, as that is common early in the tax filing season.

[AmeliesUncle]

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@swick wrote:

In my research, I did not see anything saying income had to be REPORTED on a 1099 or W-2 to be eligible for the deduction.

If this is the case, is would exclude a very large population of workers (independent hair stylists, massage therapists, nail salons, etc).

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Unfortunately, the law itself says it must be reported on a 1099 (for a self-employed person).  The "transition" guidance for this year also says that.

Yes, unfortunately that excludes A LOT of self-employed people from claiming that deduction  I suspect that those who made the law included that requirement to reduce fraud, but unfortunately, that drastically limits the number of self-employed people who can claim the deduction.

[danaegoldengirl71]

The IRS website explicitly says that self employoed do not need a 1099 for tips if you keep records of them. I think TT needs to change their software to comply with this indication.

See here: IRS - No Tax on Tips.

[VolvoGirl]

But they did have self employment income reported on a 1099K.  So what if all their income is only cash and no 1099NEC or 1099K?    And  how do we know if the 7,000 tips is not included in the  $55,000?  They did get a 1099 but it might not be broken out.   

[AmeliesUncle]

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@danaegoldengirl71 wrote:

The IRS website explicitly says that self employoed do not need a 1099 for tips if you keep records of them.

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No, it does NOT say that.  It says the 1099 does not separate out the tips, so the person can calculate the amount of tips by their own records.  It still needs to be on a 1099.

The 1040 Instructions have that same example, and immediately below it the Instructions say:

"Only amounts that appear in the aggregate on Forms 1099 can be considered qualified tips. Any “cash tips” received by the tour guide in actual cash that don’t appear on Form 1099-K cannot be included in the deduction."

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=104

[swick]

Thank you for your response. I'll have to do more research, since TT is not allowing the deduction due income not having it 'reported' on a 1099.

[boliver3]

If you want to dive into tax-speak, IRS Notice 2025-69 allows individuals who receive a 1099 to use contemporaneous records to substantiate their tip income for 2025 if it isn't specifically set out on the 1099.  (You'll find the fun part around page 16.)

They have not addressed what to do if you earn less than the threshold for receiving a 1099.  TurboTax does have a place to report this when you enter your income for Schedule C.  If say you work for Uber, but only made $400, go ahead and report it as cash income.  There's a check box for "tips".  On the next screen you want to say this "should" have been reported on a 1099, and enter the tip amount. 

Right now there's no IRS guidance that would allow you to claim the tip.  However, TurboTax has a statement that they will reach out if the IRS provides further guidance that would allow you to claim the deduction.

[tiannatrang]

Regarding to the questions: No tips tax: turbotax said i don't qualify for the deductions of the no-tip tax, because I don't have a for 1099. How do I apply the tip to the form Schedule 1-A?

[AmeliesUncle]

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@tiannatrang wrote:

turbotax said i don't qualify for the deductions of the no-tip tax, because I don't have a for 1099.

How do I apply the tip to the form Schedule 1-A?

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That is correct, there is no deduction if the tip amount isn't included in the total amount of a 1099.

If you have a 1099, enter the 1099 and the worksheet has a spot about tips.

[travis3]

I am a single member LLc. Does this mean I am not able to take advantage of the tax deduction since I do not have a 1099? I have very detailed records of all tips and income. 

[AmeliesUncle]

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@travis3 wrote:

Does this mean I am not able to take advantage of the tax deduction since I do not have a 1099? I have very detailed records of all tips and income. 

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Correct.  No 1099 equals no deduction.

[RR4544*]

It is over 1 month later and this issue has still not been resolved (a big update was provided this morning without a fix). Is Intuit working on it ? “Wait for a potential fix” is not practical advice … I have used TurboTax for 38+ years, but without anything more firm, I am going to have to change to one of your competitors (eg. H&R Block).

[Opus 17]

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@RR4544* wrote:

It is over 1 month later and this issue has still not been resolved (a big update was provided this morning without a fix). Is Intuit working on it ? “Wait for a potential fix” is not practical advice … I have used TurboTax for 38+ years, but without anything more firm, I am going to have to change to one of your competitors (eg. H&R Block).

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What fix?

Whether you like it or not, section 224(a) of the OBBB says that a deduction will be allowed for tips reported on required reporting forms such as W-2 and 1099 forms, or reported on form 4137.   Form 4137 is for W-2 workers who must report additional tips that were not reported to the employer and not subject to social security and medicare tax.  Form 4137 can't be used by self-employed people to report tips.

The proposed regulations are here.

https://www.federalregister.gov/documents/2025/09/22/2025-18278/occupations-that-customarily-and-reg...

If you are self-employed, and your tips are not included on a 1099, you can't deduct them. That's how the law was written.  Don't blame Turbotax or the IRS.  Blame Congress.  And in the future, ask for your tips via a payment service so you get a 1099-K. 

[RR4544*]

Every AI I’ve asked (ChatGPT, Claude, and Gemini) disagrees with TurboTax’ position; thus my feedback that I will have to switch to another provider. There is an exception for 2025 (tips do not need to be reported on 1099) that has not been incorporated in your software…