Can Self-Employed Individuals Claim the Tips Deduction?
Basic Tips Deduction Rules
The no-tax-on-tips deduction is a write-off of up to $25,000 on Form 1040 or 1040-SR. It can be claimed by individuals whether using the standard deduction or itemizing
Personal deductions.
It does not affect the amount of adjusted gross income; it is subtracted from adjusted gross income.
There is an income limit for claiming the deduction. The deduction phases out for
individuals with modified adjusted gross income (MAGI) above $150,000 (or $300,000 in case of a joint return).
Tips must be "qualified." This means they are voluntary payments made in cash.
Special Rule for Self-Employed Individuals
For self-employed individuals, only tips reported on Form 1099-NEC (box 1); Form 1099-MISC (box 3), or Form 1099-K (box 1a) can be taken into account. This means that while home service contractors working for Angi or drivers for Uber may get a 1099-K if there are sufficient payments and transactions, many self-employed individuals likely will fall below the threshold for the information return and won't be able to deduct their tips because there won't be any reporting to the IRS on an information return.
Eligible Industries
Proposed regulations issued in September 2025:
1. Beverage and food service
2. Entertainment and events
3. Hospitality and guest services
4. Home services
5. Personal services
6. Personal appearances and wellness
7. Recreation and instruction
8. Transportation and delivery
This document is designed for general information only. The information presented in this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client relationship.
For more information on this and other topics, please contact Kevin via any of the channels listed below:
📧 kevin@kmckernan.com | 📞 718-317-5007