2026 Filing Season Change
No Tax on Tips: Federal Tip Income Exclusion for 2025 Returns
Tips are now excluded from federal income tax for qualifying tipped workers filing 2025 returns. Claim the exclusion on the new Schedule 1-A.
Who Qualifies
W-2 employees who receive tips in qualifying occupations (food service, hospitality, barbers/stylists, rideshare/delivery drivers, and other traditionally tipped roles). Tips must be reported to employer. Self-employment tips do not qualify.
Key Facts
Tips are fully excluded from federal income tax for 2025 returns filed in 2026.
Maximum annual exclusion is $25,000 in tip income per taxpayer.
Only W-2 reported tips qualify — cash tips must be reported to your employer via Form 4070.
Social Security and Medicare taxes still apply to tip income.
Claim the exclusion on the new IRS Schedule 1-A attached to your Form 1040.
The exclusion phases out for taxpayers with AGI above $160,000 (single) or $320,000 (married filing jointly).
Important Deadlines
Apr 15, 2026
SoonFederal filing deadline for 2025 individual returns (Form 1040)
Oct 15, 2026
On TrackExtended filing deadline if you filed Form 4868
Apr 15, 2026
SoonDeadline to pay any remaining 2025 tax liability
FAQ
How do I claim the no-tax-on-tips exclusion on my 2025 tax return?
File the new IRS Schedule 1-A with your Form 1040. Enter your total qualifying tip income on Schedule 1-A, which will calculate the exclusion amount (up to $25,000). The excluded amount flows to Schedule 1 as an adjustment to income.
Do I still owe Social Security and Medicare taxes on tips?
Yes. The tip exclusion only applies to federal income tax. FICA taxes (Social Security at 6.2% and Medicare at 1.45%) still apply to all reported tip income. Your employer will continue to withhold these from your paycheck.
Does the no-tax-on-tips provision apply to self-employed workers?
No. The exclusion applies only to tips reported on a W-2 from an employer. Self-employed individuals (1099 workers) who receive tips or gratuities cannot use this exclusion. The income must be reported through the employer-employee relationship.
Is there an income limit for the tip income exclusion?
Yes. The exclusion phases out for higher earners. Single filers with AGI above $160,000 and married filing jointly filers above $320,000 see a reduced exclusion. The maximum exclusion is $25,000 per taxpayer regardless of total tips earned.
What types of workers qualify for no tax on tips?
Workers in traditionally tipped occupations qualify, including food servers, bartenders, hotel staff, barbers, hairstylists, rideshare drivers, delivery drivers, valets, and similar service roles. The key requirement is that tips are reported to an employer on a W-2.
Other 2026 Tax Changes
No Tax on Overtime
Overtime pay is now excluded from federal income tax for W-2 employees filing 2025 returns. Claim the exclusion using the new Schedule 1-A.
Schedule 1-A
Schedule 1-A is a brand-new IRS form for 2025 tax returns. It is used to claim the federal income tax exclusions for tip income and overtime pay under the One Big Beautiful Bill.
Senior Standard Deduction
Seniors age 65 and older receive an additional $4,000 standard deduction on top of the normal amount for 2025 returns, providing significant tax relief for retirees.
Child Tax Credit $2,500
The Child Tax Credit increases to $2,500 per qualifying child for 2025 returns, up from $2,000 per child. More of the credit is refundable for lower-income families.
All Tax Changes
Complete overview of all tax changes from the One Big Beautiful Bill that affect 2025 federal tax returns filed in 2026, including no tax on tips, no tax on overtime, Schedule 1-A, increased Child Tax Credit, and enhanced senior deduction.