What Counts as a Tip (and What Doesn’t)?

Starting in 2025, you may be able to deduct up to $25,000 of your tips—but not every tip will qualify. Only qualified tips count toward the new deduction.

A qualified tip is:

• Voluntary – The customer chooses to leave it.

• Customer decides the amount – They can leave as much or as little as they want.

• Not required or negotiated – It’s not set by your employer or part of a service charge.

• Customer control – The customer can choose who gets it.

If a payment is automatic or required, like a built-in service charge, it doesn’t count as a qualified tip.

Cash or Card Both Count

Qualified tips can come from cash or card payments.

• Cash tips include money left directly by the customer or tips added to a card payment.

• Tips received through tip-sharing or pooling also count as cash tips if properly reported.

If you earn tips, start tracking qualified tips from service charges or automatic fees now. As we currently understand the guidance, only your qualified tips will count toward the new deduction when you file your 2025 return.

Each week, I share a clear, bite-sized tax insight straight from my continuing education so you can stay informed without sifting through tax changes.

Next week, we cover what documentation shows your tip information for this deduction.

Thanks for reading,

Brandy Sparkman, EA

I’ll keep learning so you can stay focused on what you do best.

See you next week for another Tax Minute.