Will a Higher Income Limit the Tips Deduction?

Starting in 2025, you can deduct up to $25,000 of qualified tips—but the higher your income, the smaller your deduction may be.

Here’s how the limit works:

The deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds:

• $150,000 for single filers

• $300,000 for joint filers

As your income rises above these thresholds, your allowable deduction gradually shrinks until it phases out completely.

Why this matters:

If your income is close to or above these thresholds, you may not be able to deduct the full $25,000—even if you earned that much in tips.

Example:

If you are single and have a MAGI of $160,000, you might only get a partial deduction for your qualified tips.

Take Action:

Track your tips carefully and keep an eye on your total income. Knowing where you stand will help you understand how much of the deduction you can claim.

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 shift our focus to the new tax laws around social security.

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.