CashoutGlossary / Qualified tips
Qualified tips
Voluntary cash or card tips, including shared tips, earned in an IRS-listed tipped job and properly reported, which count toward No Tax on Tips.
Qualified tips are the tips you can deduct under No Tax on Tips, up to $25,000 a year for 2025 through 2028. To qualify, a tip must be:
- Voluntary: paid without any consequence for not paying, not negotiated, and the amount set by the customer.
- Cash or charged: cash, card and tip-share or tip-pool money count. Event tickets, meals, other noncash items and digital assets don't.
- From a listed occupation: one of the 71 jobs at irs.gov/TippedOccupations, each with a Treasury Tipped Occupation Code.
- Reported: for 2026, included in cash tips separately reported on your W-2 (box 12, code TP) or a 1099, or reported by you on Form 4137.
What doesn't qualify: service charges, automatic gratuities and other mandatory amounts added to the bill, even when they're paid out to staff, unless the customer is expressly given the option to change or remove them. Tip-pool money received by a manager or supervisor doesn't qualify either.
Common mistake: assuming every dollar in your pocket counts. Cash you never reported isn't qualified unless you report it on Form 4137 and pay the Social Security and Medicare tax on it. And if box 14b of your W-2 shows only code 000, the TP amount isn't qualified.
Related terms
Schedule 1-A · Treasury Tipped Occupation Code (TTOC) · Service charge · Auto-gratuity · Form 4137
