Tips Credit for Self-Employed`

Forum|Forum|6 months ago
January 14, 2026
7 replies
447 views

I have a client who is self-employed as a hair dresser and receives tips. I would like to record the tips credit for her but under the "Qualified Tips Smart Worksheet for Schedule 1-A, Part II", none of the business information for net profit appears and there are two asterisks next to "All other tips (such as cash) from individuals" that says these tips are not currently eligible but may be in the future.

Does this mean the tips credit doesn't apply to self-employed individuals? Or do I need to check a box or record something elsewhere within Proseries?

Thank you!

Ask the Experts - OBBBA - Jan 2026

RobertB4444

Level 15

Self-employed individuals in a line of work that customarily and regularly receive tips are eligible to take the deduction and that includes hairdressers. Make certain that you have the correct employment selected.

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NeensAuthor

Level 2

I just realized it only allows the tip credit if the tips are coming from Form 1099. They are not allowing cash tips to be reported.

Vanessa A

Level 15

If she will get a 1099-K, you can still take the tip deduction IF she kept daily logs showing the amount of tips. If she does not get a 1099-K or any type of statement and does not report them on form 4137, she cannot take the deduction.

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VolvoGirl

Level 15

@Neens Just noticed you said ProSeries. This is the Turbo Tax personal forum. Forum for ProSeries and Accountants https://accountants.intuit.com/support/en-us

LLCDriver

Level 2

I'm having an issue with the calculation for tips on the Qualified Tips Smart Worksheet for Schedule 1-A, Part II. Here's what the information shows:

Line B 1 - Net Profit is entered.

Line B 2 - Other Deductions which is the adjustments to income Schedule 1, Line 26

Line B 3 - Calculated the Net Income for the business by subtracting Line B from A.

Line C e - My tip amount is correctly enteered. It exceeds BOTH my Net Profit (Line B 1) and my Net Income (Line B 2).

Line G - TT has entered in my NET INCOME from Line B 3. It also has the box checked with an X. This amount is incorrect. It should be the NET PROFIT from Line B 1.

What am I missing? Please advise.

DaveF1006

Level 15

No, this is not a mistake. In the case of a self-employed taxpayer, the tip deduction is legally capped at your Net Income (Line B3), not your Gross Net Profit (Line B1). This is why the box is checked with an X.

The law says that the tip deduction for a business owner can't be more than the money the business makes.

Line B1 (Net Profit): This is your income minus your direct business expenses, as shown on Schedule C, Line 31.
Line B2 (Adjustments): These are “above-the-line” expenses the IRS counts as part of being self-employed. The most common is the deductible part of your Self-Employment Tax (usually 50% of what you paid).
Line B3 (Net Income): This is your taxable profit after those required adjustments are taken out.

Your tip deduction can’t be more than your net business income after adjustments (line B3). Since your tips are higher than your profit, TurboTax is applying this limit correctly.

@LLCDriver

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