What the deduction is
For tax years 2025 through 2028, workers in occupations that customarily receive tips can deduct up to $25,000 a year of qualified tips from their taxable income. It is claimed on Schedule 1-A and works whether you itemize or take the standard deduction.
It lowers federal income tax only. Your tips are still income on Schedule C, and as a self-employed worker you still pay self-employment tax on them.
Who qualifies
- Your occupation is on the IRS list of occupations that customarily and regularly received tips on or before December 31, 2024. The final list has more than 70 occupations. Several are common among 1099 workers: delivery drivers, taxi and rideshare drivers, barbers, hairdressers and cosmetologists, manicurists, home cleaning service workers, home movers and digital content creators.
- You have a valid Social Security number. An ITIN is not enough.
- If you are married, you file jointly. Married filing separately cannot take it.
What counts as a qualified tip
- Voluntary. The customer chose to pay it and the amount was not negotiated. Mandatory service charges and fees are not tips.
- From customers, including tips shared with you.
- Paid in cash or its equivalent: cash, card, check, gift card, or through the app.
Extra rules for the self-employed
- Limited to your net profit. The deduction cannot exceed your net income, before this deduction, from the business where you earned the tips. If your tips were $9,000 but your Schedule C profit was lower, your deduction is capped at the profit.
- Income phase-out. The deduction drops by $100 for each full $1,000 of modified adjusted gross income above $150,000 ($300,000 for joint filers).
- Specified service businesses. Tips earned in certain professional service fields do not qualify. Under current IRS guidance, workers in the listed tipped occupations are treated as not being in one of those fields.
- Reporting. Starting with 2026, the forms show tips separately: box 1b of Form 1099-NEC and box 1c of Form 1099-K list cash tips, and the box next to it shows your tipped occupation code. Code 000 means the tips do not qualify. You use those amounts on Schedule 1-A. Keep your own records too: app earnings statements that break out tips, and a log of cash tips.
An example: a delivery driver
A single delivery driver earns $38,500 in 2026, including $9,000 in customer tips, and has a Schedule C profit of $28,688 after mileage and other expenses.
| Without the tips deduction | With the tips deduction | |
|---|---|---|
| Tips deduction (Schedule 1-A) | $0 | $9,000 |
| Federal income tax | $845 | $116 |
| Self-employment tax | $4,054 | $4,054 |
The deduction saves this driver about $729 in income tax. Self-employment tax does not change, and for most gig workers it is the larger of the two taxes, so keep setting money aside. Our gig driver tax calculator shows both.
How to claim it
- Report all your income, tips included, on Schedule C, and figure self-employment tax on Schedule SE as usual.
- Check your occupation on the IRS list.
- Fill out Schedule 1-A, Part II, with the qualified tips from your 1099 forms, no more than your net profit from that business.
- Apply the phase-out if your income is above the threshold. Tax software does this for you.
If you work for several apps, the tips from each count toward the same $25,000 annual maximum. For other deductions that lower self-employment tax as well, see our guide to 1099 deductions by profession.