Part II No Tax on Tips

In general, tips received as an employee or from self-employment must be included in your gross income and are subject to income tax and social security and Medicare tax.

If you received cash and charge tips of $20 or more in a calendar month and didn’t report all of those tips to your employer, you must file Form 4137. You must also file Form 4137 if your Form(s) W-2, box 8, shows allocated tips that you must report as income.

If you have net earnings from self-employment, use Schedule SE to figure the tax due on net earnings from self-employment.

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

You can claim this deduction whether you claim the standard deduction or itemize deductions on Schedule A or Schedule A (Form 1040-NR).

If you are married, you must file a joint return with your spouse to claim this deduction.

For tax year 2025, Form W-2, Form 1099-NEC, Form 1099-MISC, and Form 1099-K were not updated to separately identify tips that may qualify for this deduction. See Determining the amount of qualified tips received by employees and Determining the amount of qualified tips received by non-employees, later. Also, see the instructions for lines 4a and 5 for more information about how to identify the qualified tips included in the amounts reported on these forms.

Fill out Schedule 1-A, Part II, only if:

You (and/or your spouse if filing a joint return) received qualified tips in 2025.

You have a valid social security number (SSN). If you are married filing a joint return, the spouse who received the qualified tips must have a valid SSN.

Maximum amount of deduction.

You can’t deduct more than $25,000 of qualified tips, regardless of your filing status. If you are self-employed, your tips from your trade or business are taken into account in figuring the deduction only to the extent you had net income. Your net income is the gross income from the trade or business in which the qualified tips were received less the amount of the total deductions (other than the deduction for qualified tips) allocable to that trade or business. See Net income limitation , later.

If you are married and filing a joint return, and both you and your spouse have qualified tip income, the $25,000 maximum amount of deduction limit applies to your combined qualified tip income. It is not a per spouse limit.

The deduction amount (after applying the $25,000 deduction limit) is reduced if your MAGI is more than the amount shown next for your filing status.

Married filing jointly—$300,000.

Single, Head of household, or Qualifying surviving spouse—$150,000.

Your MAGI is the amount on line 3 in Part I of Schedule 1-A.