Guides / How to Claim No Tax on Tips

By NorseHorse. Updated October 16, 2026. General information, not tax advice; confirm your situation with a tax professional.

You claim the tips deduction on Schedule 1-A, Part II, which you attach to Form 1040. You enter your qualified tips from each W-2 (box 12, code TP), Form 4137 or 1099, cap the total at $25,000, then cut it by $100 for every full $1,000 your modified adjusted gross income goes over $150,000 ($300,000 if married filing jointly).

The line numbers below come from the 2026 draft Schedule 1-A (created June 16, 2026, marked DO NOT FILE), because the final form and its instructions are not out yet, so lines can still move. The layout differs from 2025, when line 4 started from W-2 box 7 and the total went to Form 1040 line 13b. On the 2026 draft Form 1040 it goes on line 13a.

Check that you qualify first

• Your job is on the Treasury list. The list at irs.gov/TippedOccupations has 71 occupations in eight categories, each with a three-digit Treasury Tipped Occupation Code (TTOC). Bartenders (101), wait staff (102), chefs and cooks (105), dishwashers (108), barbers and hairstylists (603) and goods delivery people (804) are all on it.
• You have a valid Social Security number. The person who received the tips needs an SSN issued before the return's due date, including extensions. On a joint return, only the spouse with tips needs one.
• If you're married, you file jointly. Married filing separately gets no tips deduction.
• The tips were voluntary. The customer chose the amount, it wasn't negotiated, and skipping it had no consequence.

Gather your tip numbers

Read box 14b before you use the TP number. If the only code there is 000, the W-2 instructions say your tips are not qualified tips and you should not use the box 12 amount. The 1099-NEC has the same rule for its code box, 1c. See box 12 code TP and box 14b explained.

You need Form 4137 if you got $20 or more in cash and charge tips in a month and didn't report them all. Allocated tips from W-2 box 8 that you must report as income also go on Form 4137 line 1. See Form 4137 for unreported tips.

Part II, line by line

1. Line 4 (rows 4a to 4e): one row per employer. Columns (i) and (ii) are the employer's name and EIN (W-2 box b). Column (iii) is the qualified tips in W-2 box 12, code TP. Column (iv) is the qualified tips in Form 4137, line 1, column (c), or zero if you didn't file Form 4137. Column (v) is the larger of (iii) or (iv), not the sum, because Form 4137 column (c) already counts the tips you did report.
2. Line 5: add column (v).
3. Line 6 (rows 6a to 6e): one row per business. Column (v) is net profit (Schedule C line 31) minus other allocable deductions. Columns (vii), (ix) and (xi) take tips from up to three 1099s, totaled in (xii). Column (xiii) is the smaller of (v) or (xii), so the deduction can't exceed what the business netted. More in No Tax on Tips for the self-employed.
4. Line 7: add column (xiii).
5. Line 8: add lines 5 and 7.
6. Line 9: the smaller of line 8 or $25,000, with no higher cap for a joint return.
7. Line 10: your MAGI from Part I, line 3. MAGI (modified adjusted gross income) here is your adjusted gross income from Form 1040 line 11b plus any excluded Puerto Rico income and amounts from Forms 2555 and 4563.
8. Line 11: $150,000, or $300,000 if married filing jointly.
9. Line 12: line 10 minus line 11. If that's zero or less, copy line 9 to line 15 and you're done.
10. Line 13: divide line 12 by $1,000 and round down to a whole number.
11. Line 14: multiply line 13 by $100.
12. Line 15: line 9 minus line 14, but not below zero. This is your deduction. It's added to the other Schedule 1-A deductions on line 44, which goes to Form 1040 line 13a.

Two worked examples

Under the phase-out. A single server has $18,000 in box 12 code TP, code 102 in box 14b, no Form 4137 and $48,000 of MAGI. Lines 5, 8 and 9 are $18,000. Line 12 is negative, so line 15 is $18,000. With the 2026 standard deduction of $16,100, taxable income drops from $31,900 to $13,900. All $18,000 comes out of the 12 percent bracket (single income over $12,400 up to $50,400), saving about $2,160 in federal income tax.

In the phase-out. A single bartender has $14,000 of qualified tips and $157,800 of MAGI. Line 12 is $7,800. Line 13: $7,800 divided by $1,000 is 7.8, rounded down to 7. Line 14 is $700. Line 15 is $13,300. The No Tax on Tips calculator runs this math.

What does not count

• Service charges. Automatic gratuities and other mandatory amounts added to the bill don't count, even if paid out to staff. If the customer is expressly allowed to change or remove the charge, including to zero, it isn't mandatory.
• Manager and supervisor tip-pool money. Amounts a manager or supervisor gets from a tip pool are not qualified tips.
• Non-cash tips such as event tickets, meals, services and digital assets.
• Tips in an SSTB. Tips earned in a specified service trade or business (SSTB), a category from the section 199A business income rules, are excluded. The April 2026 final rules left SSTBs for later, and until January 1 of the year after final SSTB rules come out, the IRS treats people in a listed occupation as outside an SSTB. Check irs.gov before you file.

If box 12 code TP is blank or wrong

2026 is stricter than 2025. For 2025, tips didn't have to be shown separately, and Notice 2025-69 let employees use W-2 box 7 or their monthly tip reports. That rule covers only tax years beginning before January 1, 2026. For 2026, qualified tips must be in the cash tips separately reported to you on a statement such as the W-2, or reported by you on Form 4137. Employers' penalty relief for leaving the tip lines off was also 2025 only.

A missing TP amount can cost you the deduction, so get it fixed before you file:

1. Ask your employer for a corrected W-2 (Form W-2c).
2. If you've contacted them and still don't have a corrected form by the end of February, call the IRS at 800-829-1040. The IRS will contact the employer and send you Form 4852, a substitute W-2.
3. If you file using Form 4852 and the corrected W-2 later shows different numbers, you must file an amended return on Form 1040-X.

With the 2026 instructions not out, no other fallback for a blank TP box is confirmed, and don't count on Form 4852 being one: for the overtime deduction, the IRS says Form 4852 does not satisfy the reporting requirement and an amount missing from the W-2 can't be deducted without a W-2c. Don't plug in box 7 and hope. Your own daily tip record is what shows payroll the number is short: the tip log template works, and Cashout logs each shift's tips, tip-outs and hours.

Common questions

Does the deduction cut my Social Security and Medicare tax?

No. It's a federal income tax deduction only. Tips of $20 or more a month are still subject to Social Security and Medicare tax.

Do I have to itemize to claim it?

No. You get it whether you itemize or take the standard deduction.

Does it lower my AGI?

No. Form 1040 figures AGI on line 11a; the Schedule 1-A total comes in later, on line 13a.

I had two tipped jobs. How do I enter them?

Give each employer its own row on line 4. The $25,000 cap on line 9 applies to the total.

Can I claim it if I'm married filing separately?

No. Married taxpayers must file a joint return to claim the deduction.

Track it all with Cashout. Shifts, tips, unpaid breaks, taxes, and mileage, logged in seconds. iPhone · Android