The "No Tax on Tips" Deduction for Self-Employed Gig Workers: Who Qualifies and the Fine Print

"No tax on tips" made a good slogan. The law behind it is narrower and more detailed than the slogan suggests, and self-employed gig workers have a few extra rules that employees do not.

Here is how the deduction works for drivers, delivery workers, and other self-employed people who get tipped.

The basic rule

IRC Section 224, added by Public Law 119-21, allows a deduction equal to the qualified tips you receive during the year that are included on the information statements described in the statute, or reported on Form 4137. The final regulation, Treas. Reg. 1.224-1(a), says the deduction is allowed under Section 63(b), which means you can take it whether or not you itemize.

It applies to tax years beginning after December 31, 2024, and Section 224(h) ends it for tax years beginning after December 31, 2028. So it covers 2025, 2026, 2027, and 2028.

Tips are still income

The deduction does not make tips non-taxable at the front end. Tips are part of your gross receipts on Schedule C. The deduction comes later, on your Form 1040, and it reduces income tax only.

It does not reduce self-employment tax. Treas. Reg. 1.224-1(e)(1) states that the tips deduction is not a trade or business deduction, so it does not come off your Schedule C profit, which is what self-employment tax is figured on. See how self-employment tax is calculated.

Which jobs qualify

Section 224(d)(1) limits the deduction to tips received in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided by Treasury. The final list is in Treas. Reg. 1.224-1(h). Occupations on the list that are common in gig and freelance work include:

• Taxi and rideshare drivers and chauffeurs, including platform or app-based rideshare drivers.
• Goods delivery people, including pizza and grocery delivery drivers and app or platform-based delivery people.
• Digital content creators, such as streamers, online video creators, and podcasters.
• Home maintenance and repair workers, such as handymen and house painters.
• Home cleaning service workers.
• Pet and show animal caretakers, such as pet sitters and dog walkers.
• Tutors.
• Exercise trainers and group fitness instructors.
• Home movers.

The list is longer than this, and the regulation says only tips received in connection with listed occupations qualify. Check the table in the regulation for your actual work.

One more limit: under Section 224(d)(2)(B), tips received in a specified service trade or business, as defined for the QBI deduction in Section 199A(d)(2), do not qualify. See the QBI deduction for what that term covers.

What counts as a tip

Treas. Reg. 1.224-1(c) sets the definition:

• Voluntary. The amount must be paid without any consequence for not paying it, not negotiated, and determined by the customer.
• Not mandatory charges. Service charges and automatic gratuities are not tips. If a customer can change an app-suggested tip to zero, what they choose to pay can be a tip.
• Cash medium. Cash, card, and app payments denominated in cash count. Non-cash items like event tickets or meals do not, and the regulation excludes digital assets.
• Paid by the customer. The "payor" is the person receiving the service. A platform that passes the customer's tip to you is a conduit, not the payor.

The regulation also has an anti-abuse rule. Amounts relabeled from your agreed price into "tips" are not qualified tips.

The customer decides what a tip is. You do not get to decide it after the fact by moving numbers around on your books.

The limits

• $25,000 cap per return, regardless of filing status, under Section 224(b)(1) and Treas. Reg. 1.224-1(b)(1).
• Income phase-down. The deduction is reduced by $100 for each $1,000 of modified adjusted gross income over $150,000, or $300,000 on a joint return, under Section 224(b)(2).
• Business income limit. For a self-employed person, Section 224(c) and Treas. Reg. 1.224-1(e) limit the deduction to the amount by which the gross income of the business, including tips, exceeds its other deductions. In plain terms, the deduction cannot exceed your net profit from the business where you received the tips.
• Social Security number. Section 224(e) requires the tip recipient's Social Security number on the return.
• Married couples must file jointly under Section 224(f).

The paperwork rule, by year

Section 224(a) ties the deduction to tips included on statements furnished under Sections 6041(d)(3), 6041A(e)(3), or 6050W(f)(2), which are the new tip lines on Forms 1099-NEC, 1099-MISC, and 1099-K.

For 2025: Those forms did not change. Notice 2025-69 and the transition rule in Treas. Reg. 1.224-1(d)(2) let self-employed taxpayers use tips included in the total on their 2025 Form 1099, even though the tips were not separately stated. Notice 2025-69 says you can figure the amount using earnings statements, receipts, daily tip logs, platform records, or other documentary evidence. Its example of a self-employed tour guide who kept a log of each tour with the date, customer, and tip amount shows the kind of records the IRS expects.

For 2026 and later: The transition rule is gone. Under Treas. Reg. 1.224-1(d)(1), qualified tips must be included in the amount of cash tips separately reported on the statement furnished to you. Look for the separate tip figure on your 2026 Forms 1099. If a platform paid you below its reporting threshold and furnished no statement, read the IRS's current guidance before you claim the deduction for those tips. See Form 1099-K rules and the 1099-NEC threshold.

Interaction with the QBI deduction

Public Law 119-21 also added Section 199A(c)(4)(D). Qualified business income does not include any amount for which you take the tips deduction. Tips you deduct under Section 224 come out of the QBI calculation, so the two deductions do not apply to the same dollars.

What to do now

1. Confirm your work is on the occupation list in Treas. Reg. 1.224-1(h).
2. Download each app's earnings statement and save it. For 2025, those statements and your own logs are your proof.
3. Report all tips as gross receipts on Schedule C.
4. Figure the deduction subject to the $25,000 cap, the income phase-down, and the net profit limit.
5. Keep records for as long as the return can be examined. See recordkeeping rules.

If you drive, see the full rideshare and delivery driver guides.