No Tax on TipsU.S. Schedule 1-A estimator

Schedule 1-A Part II

How the deduction works

Congress created a federal income-tax deduction for qualified tips. The IRS put the computation on Schedule 1-A. This page restates the published rules. It is not a determination of your tax.

  1. Confirm the job is on the IRS list

    Only tips received in an occupation that customarily and regularly received tips on or before December 31, 2024, can be qualified tips. The IRS published 71 Treasury Tipped Occupation Codes (TTOC 101–810).

    Search this site’soccupation listor theIRS table.

  2. Count only qualified, reported tips

    The IRS describes qualified tips as voluntary cash or charged tips from customers, including shared tips. Auto-gratuity and many service charges may not qualify. Tips generally must appear on a Form W-2, Form 1099, another statement, or Form 4137.

  3. Meet the personal requirements

    You need a Social Security number valid for employment. If you are married, the IRS says you must file jointly. You can claim the deduction with the standard deduction or with itemized deductions.

  4. Apply the $25,000 cap

    Schedule 1-A takes the smaller of your qualified tips or $25,000. For self-employed people, the IRS also limits the deduction to net income from the tipped trade or business, before this deduction.

  5. Reduce it if MAGI is over the threshold

    The phase-out begins when modified AGI exceeds $150,000, or $300,000 if you file a joint return. The form divides the excess by $1,000, decreases any fraction to the next lower whole number, and multiplies by $100. That amount reduces the capped tips. The deduction cannot go below zero.

    Example from that rule: $40,500 over the threshold is 40.5, which decreases to 40, then 40 × $100 = $4,000 of reduction.

  6. Put the result on Schedule 1-A

    Complete Part II of Schedule 1-A and attach it to Form 1040, 1040-SR, or 1040-NR. The IRS explains the form inFS-2026-04andthis newsroom article.

W-2 Box 12, code TP

For 2026, employers report qualified tips in Box 12 using code TP. 2025 was transitional. Keep a contemporaneous tip record even if a form later shows a total.

FICA is not waived

This deduction is a federal income-tax deduction. It does not say that Social Security tax, Medicare tax, or other FICA amounts are waived. Do not treat an estimated income-tax deduction as payroll-tax relief.

Common questions

Occupation names on this site were copied from the IRS list (IRS page last reviewed 2026-06-28; copied 2026-09-17). The amounts on this page restate the IRS pages linked below.

Does the No Tax on Tips deduction waive Social Security or Medicare tax?

No. This is a federal income-tax deduction. It does not waive FICA, Social Security tax, or Medicare tax on tips.

What is the maximum qualified tips deduction?

Schedule 1-A takes the smaller of your qualified tips or $25,000. For self-employed people, the IRS also limits the deduction to net income from the tipped trade or business, before this deduction.

When does the MAGI phase-out start?

The phase-out begins when modified AGI exceeds $150,000, or $300,000 if you file a joint return.

How is the phase-out calculated?

The form divides the excess by $1,000, decreases any fraction to the next lower whole number, and multiplies by $100. That amount reduces the capped tips. The deduction cannot go below zero. Example: $40,500 over the threshold is 40.5, which decreases to 40, then 40 × $100 = $4,000 of reduction.

Which jobs can have qualified tips?

Only tips received in an occupation that customarily and regularly received tips on or before December 31, 2024. The IRS published 71 Treasury Tipped Occupation Codes, TTOC 101 through 810.

What is W-2 Box 12 code TP?

For 2026, employers report qualified tips in Box 12 using code TP. 2025 was a transitional year. Keep your own tip record even if a form later shows a total.

Official IRS pages

When you are ready to file, use software or a tax pro. These are general product homepages, not tracked affiliate links.

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