Tipped workers: Deduct up to $25,000 without itemizing

Series Episode 07 | One Big Beautiful Bill

Attention tipped workers: Big tax deduction opportunity ahead!

The new One Big Beautiful Bill Act, signed on July 4, 2025, introduces a valuable change: from 2025 through 2028, workers in tipped occupations can claim a federal tax deduction of up to $25,000 on qualifying tip income, without needing to itemize deductions.

Whether you’re a W-2 employee or a 1099 contractor, and whether tips are received in cash or by card, as long as they’re reported properly on Form W-2, 1099, or 4137, you may qualify.

The deduction phases out for incomes above $150,000 (single) or $300,000 (married filing jointly). Despite reducing taxable income, Social Security and Medicare taxes still apply to tip earnings.

For example, reporting $20,000 in tips could mean deducting that entire amount, a powerful opportunity to increase your take-home pay.

Want to ensure you’re claiming this benefit correctly and staying IRS compliant?
Schedule a consultation with Leader CPA for strategic guidance tailored to your income.