The Act creates a temporary federal income tax deduction in an amount up to $25,000 for “qualified tips” included on a Form W-2, 1099-K, 1099-NEC, or reported by the taxpayer on Form 4137 (self-declared tips not reported to the employer). The deduction is available for tax years 2025-2028.
The Act defines “qualified tips” as any cash tip received by an individual in an occupation that “traditionally and customarily” received tips on or before December 31, 2024. The tip deduction begins to phase out for those with MAGI above $150,000 ($300,000 MFJ). It is not available to those in specified service trades or businesses, or to those whose tips are not completely voluntary. Will be reported separately on W-2.