Estimate only. This calculator provides a simplified estimate. Consult a tax professional for advice specific to your situation. FICA taxes (Social Security + Medicare) still apply to tips.
Must be under $160,000 to qualify. Phase-out begins at $150,000.
What is the No Tax on Tips Act?
The No Tax on Tips Act, signed into law in July 2025, exempts tip income from federal income tax for eligible service workers. For tax years 2025 through 2028, workers in tipped occupations can exclude up to $25,000 in tip income per year from their federal taxable income.
The provision applies to workers with an adjusted gross income (AGI) under $160,000. A phase-out applies between $150,000 and $160,000 AGI, reducing the exclusion proportionally for higher earners in that range.
Important: this exemption covers federal income tax only. FICA taxes (Social Security 6.2% + Medicare 1.45%) still apply to all tip income. State income tax treatment varies by state. Most states have not enacted conforming legislation.
Who qualifies?
- Restaurant servers, bartenders, and food service workers
- Hair stylists, nail technicians, barbers, and salon workers
- Tattoo artists, piercers, and body art professionals
- Massage therapists, spa workers, and estheticians
- Hotel staff (housekeeping, bellhop, concierge, valet)
- Delivery drivers and gig workers who receive tips
- Any worker in a "tipped occupation" as defined by the IRS
The key eligibility requirement is AGI under $160,000. Workers who receive tips as a standard part of their occupation qualify regardless of employer size.
How to claim the deduction
The tip income exclusion is claimed on your federal tax return, you don't need to do anything different during the year. Continue reporting tips to your employer as required (cash tips of $20+ per month). FICA withholding continues normally.
On your tax return, your tip income up to $25,000 will be excluded from federal taxable income. Your tax preparer or tax software will guide you through this. Look for updated IRS guidance and forms for the 2025 tax year filing season (early 2026).